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The dollar opens the week on the softish side ahead of a very busy schedule of data and central bank meetings in the G10 space. The data highlight will be tomorrow's release of November US payrolls, but we'll also see some key Fed speakers. The theme of which central bankers will be prepared to accept market pricing of 2026 rate hikes remains in focus, too.
 

USD: Fed's Williams speech could be important

The dollar opens one of the last big trading weeks of the year on the softish side. Last week's pressure emerged from a Federal Reserve that remained open to further cuts, but also a broader view emerging that if the global economy remains so resilient, shouldn't some rate hikes start to be priced elsewhere in the world? The latter was a key factor supporting the euro and the Australian dollar last week. Buying currencies on that thesis comes with a health warning, however. Overnight, the New Zealand dollar lost 0.7% as new Reserve Bank of New Zealand Governor, Anna Breman, pushed back on RBNZ hikes priced for next year.

In terms of the domestic US story this week, the focus will be on big data releases and key Fed speeches. The highlight is tomorrow's release of the November nonfarm payrolls (NFP) data. A soft number of +50k is expected, plus the unemployment rate edging up to 4.5%. Any softer-than-expected data here could bring forward pricing of the next Fed rate cut. We think the Fed can cut again in March, which is priced with just a 33% probability currently. Another key data point this week will be Thursday's release of November CPI, where the year-on-year rate is expected to nudge up to 3.1%.

We are also interested in key Fed speeches and particularly whether key figures see room for more cuts. We will hear from New York Fed President John Williams at 4:30pm CET today. He was influential in dovishly shifting market expectations ahead of last week's Fed rate cut. And on Wednesday, we will hear a speech on the economic outlook from Chris Waller – he's been a very influential Fed voice over recent years.

That is largely the US side for FX markets, but we also see key central bank policy meetings in the eurozone, Japan, UK, Norway and Sweden. The biggest threat to short dollar positions from overseas probably comes from Thursday's European Central Bank rate meeting, should eurozone growth forecasts not be revised high enough or President Christine Lagarde push back against thoughts of ECB rate hikes in 2026.

For today, DXY can probably consolidate in a 98.00-98.50 range.

EUR: A big week for Europe

EUR/USD is holding onto last week's gains. The above US events will be an important driver, as will Thursday this week. Not only do we have an ECB meeting, but we also have a European Council meeting. Here, EU leaders will be trying to sign off on a reparations loan for Ukraine and also a Mercosur trade deal. The meeting is going to prove a key litmus test of whether Europe can get stuff done or be subject to local interests, such as Belgium on the Ukraine loan or French farmers on Mercosur. Let's see.

Away from politics, we also have a lively data calendar. Tomorrow marks the release of the flash PMIs for December, which will reveal whether recent optimism holds into the final month of the year. And after November's final CPI release on Thursday, the week concludes with a look at eurozone consumer confidence on Friday. Better confidence will have to be a key driver of eurozone growth in 2026, given the high savings ratios of the region's consumers.

1.1750/60 is now important intra-week resistance for EUR/USD, and the NFP data and the ECB meeting will likely be the two largest determinants of whether EUR/USD ends the week on our preferred target of 1.1800.

GBP: Short positioning is huge

Friday's soft UK October GDP data weighed on the pound. Looking ahead, it is a big week for UK data, central bank policy and sterling. Ahead of Thursday's expected Bank of England rate cut, we will see jobs data (including slowing private sector wage growth) and the November CPI release. On the latter, headline inflation should nudge lower, but core and services CPI should remain firm-ish at 3.4% and 4.5% year-on-year, respectively.

A BoE rate cut this Thursday is only priced at an 85% probability. Doves like ourselves at ING expect Governor Andrew Bailey to cross the Rubicon and help deliver a 5-4 vote to cut rates to 3.75%. We then look for a further 50bp of easing in 2026 – a key reason why we see EUR/GBP heading up to 0.90 next year.

One major threat to sterling bears, however, is positioning. Asset managers are currently running some of their shortest sterling positions in over a decade. Any positive surprises could be met with a very sharp sterling short squeeze. Expect to hear of some asset managers buying cheap upside protection in sterling, such as deeply out-of-the-money euro put sterling call options.
 

CEE: Dovish inflation prints and risk-off mood increase pressure on the region

Despite the approaching end of the year, the CEE region will be busy this week, just like the global story. On the data side, this week we will see mainly numbers from Poland with the final November inflation today, which should confirm a 2.4% YoY rate and refine our estimates of core inflation, published tomorrow. For now, we see a decrease in core from 3.0% to 2.8%.

On Thursday, we will also see numbers from the labour market in Poland. However, the main attention should be paid to the last meetings of the National Bank of Hungary and the Czech National Bank this year. Both central banks should leave rates unchanged at 6.50% and 3.50%, but the focus will be on lower inflation profiles.

The NBH will also publish a new forecast on Tuesday, which should see lower inflation due to the extension of government measures and lower inflation compared to the NBH forecast in the last two months. The market is speculating that the new forecast could open the door to rate cuts next year. We still believe that this will only be the case in the second half of the year. The CNB will not publish a new forecast this time, but there could also be talk of lower inflation due to November's downward surprise and the government's intention to subsidise some of the energy prices for households.

Friday's trading turned the mood back to risk-off, which again left CEE currencies exposed to the shrinking interest rate differential coming from the sell-off in EUR rates. As we expected, EUR/CZK returned higher again, and the range of 24.250-300 seems fair to us ahead of the CNB meeting on Thursday. However, the main underperformer on Friday was the Hungarian forint, reaching its weakest value since the beginning of November. We also see tomorrow's NBH meeting as a risk for weaker FX, given that the central bank does not have much room to increase its hawkishness, and a lower inflation profile will support the market's bets on upcoming rate cuts. For now, we do not expect EUR/HUF to return lower, and if the market sees any dovish signals, we can test the 386-388 range soon.
 

CZK: New government to discuss budget draft and lower energy prices

Two months after the general election in the Czech Republic, the new government will be appointed today. According to indications on Friday, three government meetings are planned before the end of the year.

We see two main topics for the markets that should define next year’s sentiment – ​​the public finance deficit and energy price subsidies for households. Both topics should see some headlines today or tomorrow or next week on Monday, when the new government will meet. The subsidies for the regulated component of energy prices should be approved over those days, which would bring inflation next year significantly below 2%; depending on the details, we may see lows of up to 1.5% for the headline next year. Although we do not expect the CNB to cut rates because of this (as core and wage growth will remain elevated), the probability of the central bank's next step is visibly shifting towards rate cuts compared to the current hawkish pricing.

The second topic is the state budget deficit, which is unknown for now. The new government plans to overhaul the previous government’s proposal and accuses it of underestimating revenues in the current proposal. This would correspond to a deficit of roughly 2.3-2.5% of GDP. The question is whether the new government will cut spending or increase the deficit. We are likely to see a combination of both and expect the planned deficit to remain below 3% of GDP. At the same time, we believe that 3% and above would bring a negative market reaction, even though the long end of the curve has been trading poorly for several weeks as a result of this story and sell-off in core markets.

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