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- This week, markets digested mixed economic data and central bank expectations.
- Currency movements remain volatile, with the US dollar weakening, while the pound, the yen and Aussie dollar gain on strong fundamentals.
- Traders are positioning ahead of next week’s major central bank meetings, which include the Fed, RBA, BOC, and SNB decisions.
As the week wraps up, markets have reacted to the latest economic data and central bank expectations which drove volatility across the FX markets and gold.
US Dollar Declines on Mixed Data, Gold Shines
The US dollar continued to decline while gold remained near six-week highs as markets digested mixed economic data. The US ISM manufacturing PMI showed contraction at 48.2 while services PMI came in stronger than expected at 52.4. ⁽¹⁾
DXY 4H Chart / Source: TradingView
Gold 4H Chart / Source: TradingView
Backlog orders stayed weak, while rising input prices for services suggest inflation may remain above the Fed’s 2% target. The survey’s gauge of services sector employment rose to 48.9 from 48.2 in October. It has now contracted for six consecutive months. ⁽²⁾
Private sector data showed that the labor market continues to weaken, with the ADP employment change showing job losses of 32,000 workers, with small businesses being hit the hardest. Concerns continue to rise, with the report indicating a sharp decline from October’s ADP report, which saw an upwardly revised gain of 47,000 positions, and was well below the Dow Jones consensus estimate from economists for an increase of 40,000. ⁽³⁾
The ADP report is the last jobs data the Federal Reserve gets before its last meeting of the year on December 10. Traders are pricing in a 90% chance of a 25 basis point rate cut from the Fed despite mixed opinions among FOMC officials over whether further easing is needed.
In recent weeks, Fed policymakers have expressed a divergence of opinions. One side sees cuts as necessary to reduce labor market issues, while the other worries that additional reductions could refuel inflation, which has remained above the Fed’s 2% target. The Bureau of Labor Statistics will release the November Non-Farm Payrolls report on December 16.
Pound Surges to Five-Week Highs on Strong Data
The British pound rose to five-week highs after rising over 1% on Wednesday, its biggest daily jump since April, due to the upward revision of business activity data which showed a brighter picture of the economy. The UK’s manufacturing came in at 50.2 while services came in at 51.3. ⁽⁴⁾
GBP/USD 4H Chart / Source: TradingView
The pound also gained support after the release of the UK’s Autumn Budget, where markets were concerned about the effects of the budget being inflationary and less controlled. However, it was interpreted that the budget was more disciplined and less inflationary than expected, removing pressure on the Bank of England to delay rate cuts.
Yen Climbs as BOJ Rate-Hike Speculation Intensifies
The Japanese yen reached its highest level in two weeks amid growing speculation of a rate hike from the Bank of Japan this month. Expectations for a rate hike rose after BOJ Governor Kazuo Ueda stated confidence in Japan’s economic outlook and said the central bank would carefully weigh the pros and cons of a rate hike and act as appropriate.
USD/JPY 4H Chart / Source: TradingView
Finance Minister Satsuki Katayama also said this week that there is no divergence between the government and the BOJ in their economic assessments, signaling continued alignment between fiscal and monetary policy.
AUD Climbs as Economic Momentum Builds Ahead of RBA Meeting
The Australian dollar pushed to a five-week peak on Thursday as surprising strength in domestic spending data pushed the currency higher. Household spending showed a jump of 1.3% in October, the biggest increase since early 2024. ⁽⁵⁾
AUD/USD 4H Chart / Source: TradingView
After three rate cuts since February, which brought interest rates to 3.6%, the Reserve Bank of Australia is widely expected to hold rates steady at next week’s meeting. Markets are pricing in a potential hike in 2026 following an inflation surge in the third quarter.
Additionally, the country’s trade surplus widened to AUD 4.39 billion in October, beating expectations, as exports reached a two-year high led by non-monetary gold shipments, while imports also rose amid robust domestic demand. ⁽⁶⁾
What to Watch Next Week
- Reserve Bank of Australia Interest Rate Decision
- US JOLTS Job Openings
- Bank of Canada Interest Rate Decision
- Federal Reserve Interest Rate Decision
- Australia Labor Market Data
- Swiss National Bank Interest Rate Decision
- UK Monthly GDP
