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The DXY Index broke below 99 and is close to returning all the gains triggered by Fed Chair Jerome Powell’s late-October remark that a December cut was “not a forgone conclusion.” The futures market is fully pricing a 25-bps cut at the December 10FOMC meeting, betting that US labour-market softness will outweigh tariff-driven inflation next week. The ADP data showed private payrolls falling 32k in November against expectations for a slower decline to 10K from 47k in October. Although ISM Services edged higher to 52.6 in November from 52.4 in October, the prices paid index fell sharply to 65.4 from 70, while new orders eased to 52.9 from 56.2. The DXY’s next support level is the 98.6 low from October 28.
GBP has been remarkably resilient, brushing aside both the Autumn Budget and criticism over Chancellor Rachel Reeves’ credibility. Markets have concluded that fears of fiscal slippage were overstated. The OBR’s cautious growth assumptions, the lack of any “mini-budget-style” surprises, and the government’s commitment to tightening day-to-day spending have kept Gilt markets orderly. More importantly, FX action shows that Fed-cut expectations are exerting a far stronger effect than the Bank of England’s easing prospects. The markets judged that the Autumn Budget concerns were not significant enough to outweigh the softening USD narrative. Yesterday’s 1.1% rally took GBP/USD back to late-October levels at to 1.3353.
Conversely, the INR continued to buck the soft USD trend, driven instead by India-specific shocks. First, the Trump administration’s high tariffs on Indian goods and ambiguity over a trade deal have undermined the country’s external outlook at a time when its trade deficit was at a record wide. Second, the Reserve Bank of India has shown little urgency about defending any specific exchange rate level, intervening only to smooth volatility rather than resist depreciation. The tolerance for a weaker currency was amplified by a sub-1% inflation rate, which fuelled rate-cut expectations. Chief Economic Adviser V Anantha Nageswaran reinforced the perception by remarking that the government was not losing sleep over the INR’s decline. Barring any surprises on the US-India trade deal, USD/INR will likely hold or be above the pivotal 90 level.
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Helen Keller
December 4 in history
Britain's "The Observer" was first published in 1783 and became the world's oldest Sunday newspaper.
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