• JOLTS Data in Focus: US labor market slack indicated by today’s JOLTS report could challenge dollar strength, with potential impacts on short-term rates and Fed policy expectations.
• Global Currency Struggles: Political and economic instability in Europe, Brazil, and India bolster dollar demand, keeping the DXY index in the 106-107 range.
• French Political Risks: EUR/USD remains under pressure amid French political turmoil and widening bond spreads, with limited recovery potential near 1.0550.
• UK Retail Weakness: Poor UK retail sales and subdued consumer confidence weigh on GBP/USD, though inflation data tempers expectations of further BoE rate cuts.
• Emerging Market Challenges: BRICS currencies face mounting pressure from internal issues, signaling tough conditions for EMFX similar to the 2020 pandemic period.

USD: JOLTS Data Takes Center Stage
Global uncertainties and fragile emerging market currencies are keeping the dollar strong. However, today’s US JOLTS job openings report (16:00 CET) could pose a challenge. Fed official Christopher Waller’s recent speech hinted at his openness to a rate cut on December 18, but markets currently price only a partial cut. A weak JOLTS report, signaling labor market slack, could push short-term US rates and the dollar lower.

Internationally, many US trading partners face internal struggles. In Europe, the French government may face collapse, while several BRICS currencies, like the Brazilian real and Indian rupee, are under pressure. Brazil’s fiscal reforms are stalling, and India’s rupee has hit record lows after disappointing Q3 GDP data. These challenges, alongside persistent dollar strength, suggest emerging market currencies face their toughest period since 2020. Expect the DXY to hold steady in the 106-107 range unless the JOLTS report significantly surprises to the downside.

EUR: Political Turmoil Limits Recovery
French political unrest drove EUR/USD below 1.05 as investors anticipate growing pressure on the ECB for rate cuts. While a weak JOLTS report could provide some upside for EUR/USD, gains are likely capped near 1.0550. Investors will closely watch French-German bond spreads and French sovereign CDS levels for further signals of risk. EUR/CHF remains above 0.93 but may test the 0.9200 range in the months ahead.

GBP: Retail Weakness and Dollar Strength Weigh on Sterling
The BRC reported a 3.3% annual drop in UK retail sales volumes, the weakest since April, reflecting dampened consumer confidence. This, coupled with a strengthening dollar, pressures GBP/USD. Safe-haven flows into the dollar, driven by geopolitical tensions and expectations of sustained high Fed rates, add further headwinds for sterling. However, resilient UK inflation data has tempered expectations for further Bank of England rate cuts, limiting downside risks for GBP/USD.