• USD Consolidation: The US Dollar Index (DXY) is stabilizing after a sharp 7% rally over six weeks, with no clear drivers for major moves but potential seasonal pressures in December.
• Treasury Secretary Watch: Markets are focused on President-elect Trump’s pick for Treasury Secretary, which could impact Treasury yields and dollar strength depending on the candidate’s experience and market credibility.
• EUR/USD Reprieve: Hawkish ECB comments temporarily boosted EUR/USD, though its bearish trend remains intact with limited room for further correction.
• GBP in Focus: Sterling is steady ahead of key events, including the BoE Monetary Policy Hearings and October’s CPI data, which could shape expectations for a likely December rate cut.
• UK Inflation Data: Analysts predict a CPI rise to 2.2% year-over-year, with core inflation steady at 3.2%; service inflation will be closely monitored by BoE officials.

USD: A Well-Earned Pause
After several tumultuous weeks, FX markets are finally catching their breath. The US Dollar Index (DXY) has surged nearly 7% in just six weeks, marking one of the sharpest movements since mid-2022. As Francesco Pesole pointed out, the biggest challenge for the dollar now may come from positioning risks. Additionally, with DXY dropping in eight of the last 10 Decembers—and consistently for the past seven—seasonal trends might start influencing the currency’s performance.

This week, with minimal US data releases, market focus shifts to President-elect Trump’s cabinet appointments, particularly the selection of the US Treasury Secretary. The shortlist includes notable names like Kevin Warsh (former Federal Reserve member), Marc Rowan (Apollo Global Management), Howard Lutnick (Cantor Fitzgerald CEO), and Scott Bessent (Key Square Group), with Robert Lighthizer still a potential contender. The bond market’s reaction to this decision will likely dictate its impact on the dollar. A credible pick could stabilize long-term Treasury yields, while a less experienced candidate might prompt a sell-off, potentially weakening the dollar.

Currently, DXY holds support above 106.00, with room for a minor correction to 105.65 without disrupting its bullish trajectory. For now, there’s no strong driver for a significant dollar move in either direction.

EUR: A Brief Reprieve
The euro has found some relief, with EUR/USD rebounding to 1.06 following hawkish remarks from ECB’s Joachim Nagel. He suggested global economic fragmentation—like supply chain shifts and trade wars—might push inflation higher, necessitating tighter monetary policy. These comments slightly narrowed the two-year EUR

swap differential, giving the euro a temporary lift.

On rate policy, markets currently anticipate 10bps of Fed cuts in December (versus our expectation of 25bps) and 31bps of ECB cuts (we foresee 50bps). Should the Fed cut more aggressively than the ECB, EUR/USD could see modest gains, especially given the dollar’s seasonal tendencies.

However, any uptick is likely limited. Even a rise to 1.0660/65 would align with the euro’s bearish near-term trend. Market attention today will remain on the US Treasury appointment.

GBP: All Eyes on Policy Hearings
Sterling is holding steady as investors turn their focus to the UK’s Monetary Policy Hearings. At 10:00 GMT, Bank of England Governor Andrew Bailey, along with key policymakers Clare Lombardelli, Alan Taylor, and Catherine Mann, will address the Treasury Committee on recent interest rate decisions. Their comments could offer insights into the BoE’s future policy direction—a critical factor for GBP.

Adding to the week’s key events, October’s Consumer Price Index (CPI) data, due Wednesday, will heavily influence expectations for the BoE’s December rate decision. Current market consensus suggests an 80% likelihood of another 25bps cut to 4.50%, which would mark the third rate cut this year.

Analysts forecast October’s headline CPI to rise 0.5% month-over-month, pushing annual inflation to 2.2% from 1.7%. Core CPI, a metric closely watched by the BoE, is expected to remain steady at 3.2%. Investors will also scrutinize service inflation, a key determinant in future rate decisions.