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There will be some key data from the UK to watch this week, which could set the tone for the pound, while the macro calendar in the US is a lot quieter. Once again, much of the market’s direction may therefore come down to crude oil. The greenback has been weighed down in recent weeks by a softer run of data which has reduced expectations of a Federal Reserve rate hike in September.
Ultimately, unless yields start to head lower, the pressure will likely remain on the US dollar, with currencies of countries with better fiscal discipline, like the Norwegian Krone and Swiss franc, likely to remain supported. This makes the USD/NOK our favourite currency to take advantage of the slump in the dollar.
Friday’s US employment report was the first of four major pieces of economic data due before the Federal Reserve’s September meeting. The figures delivered a significant downside surprise, prompting markets to scale back expectations of a September rate hike to around 44%, from above 55% ahead of the release.
Friday’s US employment report was the first of four major pieces of economic data due before the Federal Reserve’s September meeting. The figures delivered a significant downside surprise, prompting markets to scale back expectations of a September rate hike to around 44%, from above 55% ahead of the release.
Energy prices are once again setting the tone for currency markets, with the renewed tensions in the Middle East reinforcing the dollar’s appeal while weighing on low-yielding and energy-importing currencies. As oil and natural gas prices climb, investors are becoming increasingly reluctant to price out further Fed tightening, providing the greenback with another tailwind.
US investors will be back from a long weekend break today. We have some important economic data to look forward to this week following that disappointing jobs report on Thursday, which triggered a bit of dollar selling. But the greenback has started this week on the front foot again, with the USD/JPY surging back above 162.00 on disappointment there was no signs of intervention on Friday as some, including us, had expected.
The FX markets are bracing for a potentially defining week, after a two-week rally for the dollar on the back of a hawkish Fed. While one can make a case for a euro comeback amid the recent plunge in oil prices, which could put pressure on the dollar, so far this hasn’t been the case. This is largely due to a hawkish Fed and with the US data remaining largely positive.
The euro started the week on a softer footing against the dollar, surrendering part of Friday’s rebound as investors continued to digest last week’s shift in Federal Reserve messaging. Although the EUR/USD managed to stabilise towards the end of the previous week, the overall backdrop remains supportive for the dollar after policymakers at the Fed signalled a more hawkish policy outlook than markets had anticipated, with markets now pricing some 40-45 basis points of hikes by the end of the year.
The confirmation of a ceasefire sparked a broad rally across risk assets as oil prices, bond yields and the US dollar all fell back. Yet, the USD/JPY remained stubbornly strong above 16.00 amid record short bets against the yen ahead of a busy week for central banks. With both the BoJ and Fed rate decisions to come, amid a backdrop of easing geopolitical risks and lower oil prices, the USD/JPY forecast could take a bearish tilt this week. It is also now a more favourable time for the Japanese government to intervene again, if monetary policy doesn’t do the trick.
The EUR/USD forecast remains neutral despite the rebound given the recent mildly bearish price action, and pockets of strength in US data. But If fears around Fed independence fade quickly, the EUR/USD may well resume lower, even if the downside looks to be quite limited.
As well as US non-farm payrolls report, we will have key central bank rate decisions to look forward to, including from the UK, putting the GBP/USD forecast into focus heading into the final weeks of 2025.
As there remains considerable downside risks to overpriced US technology stocks, we are erring on the side of caution about risk appetite this week. That makes us neutral to slightly bearish on the EUR/USD forecast by default, even if we are not bullish on the dollar long term.
Markets appear to be in a holding pattern ahead of Wednesday’s key tariff deadline. While risk appetite remains firm, investors should be alert to headline risk over the next 48 hours. The scope for last-minute deals is high, but so too is the possibility of renewed trade tensions, with the midweek expiry of the 90-day tariff pause — the so-called ‘Liberation Day tariffs’ — threatening to disrupt the current calm.
