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In a week when we should finally start to see US data releases coming through, it is important to note that the outcome of the next Fed rate decision in December looks better priced at a 50% chance of a cut. That means that the dollar probably does not have to rally too much on the FOMC minutes released this Wednesday and can take its cue from Thursday's jobs report.
 

USD: Dollar looks better priced now

As Francesco Pesole outlined on Friday, last week's dollar sell-off had indeed come a little too far, a little too fast, and Friday's bounce was understandable. Helping that was a shift in expectations for the 10 December FOMC meeting, where the probability of another 25bp cut is now priced at around 50%. Presumably, the Federal Reserve is far happier with that kind of pricing, given the lack of available data currently. This also means that the dollar may not have to rally too far on Wednesday evening's event risk of the FOMC minutes of that 28-29 October policy meeting. Remember that was the meeting where Chair Jerome Powell went out of his way to outline that another rate cut in December was far from a foregone conclusion and that there were 'strongly differing' views amongst the Fed.

It does indeed look as though data and events on Wednesday/Thursday this week will largely determine the next move for the dollar. Wednesday evening also sees Nvidia release quarterly results, and then on Thursday, we finally see the September NFP jobs report – including the unemployment rate. Consensus currently expects a +50k gain for payrolls and an unchanged unemployment rate at 4.3%. That's probably a neutral/mildly dollar-positive outcome in that a Fed cut in December requires some actively weak US data.

There are also a lot of Fed speakers this week. Today's pick of the bunch is probably Philip Jefferson's speech at 3:30pm CET today. A repeat of the Fed's recent message that it should not rush into further rate cuts and some uncertainty as to where the neutral policy rate actually sits is probably a mild dollar positive.

DXY can probably hold the recent bounce and perhaps push onto the 99.50/65 area, where the move may stall.
 

EUR: European Commission autumn forecasts in focus

In focus on a quiet Monday will be the European Commission's autumn forecasts. In spring, the EC downgraded the 2025 and 2026 euro area GDP forecasts to 0.9% and 1.4% respectively, with inflation at 2.5% and 1.7%. It looks too soon to expect any major upgrades here, although eurozone GDP has been surprising slightly on the upside so far this year.

The next important set of releases for the euro will be Friday's flash PMIs for November. Remember, these have been holding up quite well and are suggesting that businesses could be learning to live with the uncertain international environment here. Fascinating here are events in Germany, where any move to lock in lower energy prices for German industry would no doubt be very much welcomed by local industry. Let's see whether these encouraging proposals can move ahead.

The stronger dollar has dragged EUR/USD back to 1.1600. We would expect some demand to come in should it correct lower to the 1.1560/80 area. There are also plenty of European Central Bank speakers today. The main focus will probably be on Chief Economist Philip Lane, who speaks at 3:45pm CET in Ireland. And actually, the market has recently been pricing out the chance that the ECB needs one last cut in its easing cycle.
 

GBP: Wild ride

It has been quite easy to lose track of the UK government's messaging regarding November's budget. Whether an increase in major income taxes is required or not is uncertain. After last week's gyrations, the 10-year UK Gilt-German Bund spread ended the week at 186bp – some 14bp wider than the narrowest levels last week and most likely incorporating the view that the Labour government will pursue the path of political expediency over fiscal prudence by avoiding a major rise in taxes.

While EUR/GBP has come lower and short-term GBP rates higher on the view that the income tax rate may not be raised after all, we doubt EUR/GBP needs to trade much under 0.88, if at all. And a softer UK October CPI number tomorrow could easily see sterling under a bit more pressure again.
 

CEE: Another test of NBH hawkishness

The second half of the month usually switches to quiet mode in the CEE region as the global story takes over.

Today, we will see some data from Poland and the Czech Republic. Core inflation in Poland, according to our calculations, fell from 3.2% to 2.9% year-on-year in October. PPI in the Czech Republic should continue to show some price decline.

Tomorrow, the National Bank of Hungary will take centre stage. The rate decision should be a non-event, and we expect rates to remain unchanged at 6.50%. The market will focus on forward guidance, especially after the increase in the planned public deficit. While hawkish guidance is widely expected, there is not much possibility of a tougher tone compared to previous meetings, building some dovish risk. The rest of the week will be rather quiet.

While the Czech koruna saw record highs and the Polish zloty also traded with some gains, the Hungarian forint lagged behind its peers for the first time in a while. Although the risk is more on the dovish side for the NBH meeting, the baseline hawkish tone should help keep HUF on the stronger side. At the same time, global factors should remain positive for the CEE region if the US stock market stabilises. The Hungarian government reiterated in recent days that the new US “financial shield” should protect the HUF in case of a sell-off, which is likely to provide some security for investors. We therefore expect EUR/HUF to remain near 384 here despite some narrowing of the rate differential last week.

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