• USD Strength: The dollar closed the week on a firm note, bolstered by firmer-than-expected inflation data, with next week’s CPI deflator expected to rise 0.2% month-on-month. The FOMC meeting is unlikely to have a major impact.
• DXY Outlook: Seasonal December weakness has not affected the dollar, and the DXY index could test resistance levels of 107.00-107.50 in quiet markets.
• EUR/USD Stability: The pair remains around 1.05 despite ECB updates and eurozone bond profit-taking. Near-term ranges are expected between 1.0450-1.0550, with little movement likely before the FOMC meeting.
• SNB Policy: The Swiss National Bank’s aggressive 50bp rate cut highlights its flexibility, though EUR/CHF is expected to trend lower as the SNB may struggle to match ECB rate cuts.
• GBP Weakness: Sterling fell after an unexpected GDP contraction in October, raising concerns about the UK’s economic outlook and challenging expectations for BoE rate cuts in 2025.

USD: Dollar Steady Amid Inflation Data
It’s been a packed week of market events, but the dollar ends strong near the upper end of its range. US inflation data leaned firmer than expected, setting the stage for next week’s core CPI deflator, which is anticipated to rise a modest 0.2% month-on-month. The Federal Reserve’s cycle saw little re-pricing, and next week’s FOMC meeting is unlikely to shake the dollar significantly.

For now, dollar bulls have reason to be optimistic, as December’s seasonal softness has yet to affect the greenback. With limited changes to our broader outlook, the DXY index could test resistance levels between 107.00 and 107.50 in calm markets.

EUR: Minor Movement Amid Position Shifts
EUR/USD held steady after the ECB’s policy updates, despite President Lagarde’s neutral tone. However, eurozone bond markets saw some profit-taking, reflected in the widening Italian-German yield spreads. With eurozone rates still trending lower, ECB actions are unlikely to stop at neutral levels (2.00-2.25%).

EUR/USD remains anchored around 1.05, with little reason to move significantly before next Wednesday’s FOMC meeting. Near-term ranges are likely confined to 1.0450-1.0550. Meanwhile, the Swiss National Bank took a bold step with a 50bp rate cut, but its ability to match ECB cuts remains limited. Expect EUR/CHF to trend lower.

GBP: Sterling Stumbles After Surprise GDP Drop
The pound faced broad losses as UK GDP unexpectedly contracted in October, missing expectations of modest growth. Persistent inflation and post-Autumn Budget uncertainty weigh heavily on the economy, casting doubt on the government’s ambitious growth targets.

With the Bank of England expected to hold rates steady next week, worsening economic conditions could challenge forecasts of four rate cuts in 2025, especially if growth prospects continue to decline.