Forex Market Outlook: Majors Hold Key Levels Ahead of Crucial Fed Week

Forecasts suggest that the regulator will cut the interest rate by 25 basis points to 3.75% and may also signal further monetary easing if macroeconomic indicators remain weak. This was reiterated yesterday by Fed Chair Jerome Powell during his speech at the George P. Shultz Memorial Lecture at Stanford University’s Hoover Institution. He emphasized that the Fed is ready to ease policy settings but stressed that upcoming data and persistent inflation risks will remain the key determining factors. The November US labor market report will not be published this week due to the record-long government shutdown that ended only in mid-November.

The data will become available only after the Fed meeting and will influence expectations for future decisions rather than the December outcome. Meanwhile, macroeconomic data from the eurozone released yesterday was mixed: core inflation for November came in at 2.4% YoY versus the 2.5% forecast, and fell by 0.5% MoM after a 0.3% increase the month before, while the broader CPI index accelerated from 2.1% to 2.2% YoY and dropped from 0.2% to –0.3% MoM.

Additionally, the unemployment rate in October remained unchanged at 6.4%, although analysts had expected a decline to 6.3%. Today at 11:00 (GMT+2) investors will focus on the eurozone services PMI from S&P Global and Hamburg Commercial Bank (HCOB) for November, followed at 12:00 (GMT+2) by October producer price data. Overall, inflation dynamics in the EU appear manageable, and the European Central Bank is unlikely to take pre-emptive action at this stage. However, the labor market is showing signs of weakening amid declining business activity.

GBP/USD

The pound is strengthening in the GBP/USD pair, recovering after Monday’s decline, when the asset retreated from its local highs reached on October 29. Market focus today is on the minutes of the September 18 Bank of England meeting, during which the interest rate was kept at 4.00%: seven out of nine Monetary Policy Committee members voted to maintain the current rate, while two supported a 25-basis-point cut.

The regulator again highlighted rising financial risks heading into 2025, including concerns over growing tensions on global trading platforms due to new restrictive measures introduced by various countries.

Officials also pointed to the rapid appreciation of risky assets, particularly technology stocks involved in artificial intelligence and generative models. This shift may be reshaping labor markets as corporations increasingly seek to replace certain roles with AI-driven systems. Overall, the minutes did not significantly alter market expectations for the next BoE meeting on December 18.

Nearly 90% of analysts believe the regulator will cut rates by 25 basis points, following the Federal Reserve, whose decision will be announced on December 10. UK macro data published Tuesday showed the annual Nationwide house price index slowed from 2.4% to 1.8% in November (forecast: 1.4%), while the monthly figure rose from 0.2% to 0.3% (consensus: 0.0%).

Today at 11:30 (GMT+2), traders will monitor the UK services PMI, expected to remain at 50.5. At 16:45 (GMT+2), similar PMI data from the US will be released, with forecasts suggesting no change from 55.0. At 15:15 (GMT+2), the ADP private employment report will be published: analysts expect an increase of 5,000 jobs in November after a 42,000 rise in the previous month.

AUD/USD

The Australian dollar is strengthening in the AUD/USD pair, extending a robust short-term uptrend and updating local highs last seen on October 30. The instrument is testing the 0.6580 level as investors digest today’s macroeconomic releases. Australia’s Q3 GDP increased by 2.1% YoY (up from 1.8% and slightly below the 2.2% forecast), while quarterly growth slowed from 0.6% to 0.4% (expected: 0.7%), likely adding pressure on the Reserve Bank of Australia to consider monetary easing.

The RBA has maintained a relatively hawkish stance, insisting on holding current parameters amid persistent inflation risks.

Additional data today showed mixed business-activity indicators: the November services PMI from S&P Global ticked up from 52.7 to 52.8; the manufacturing index from the Australian Industry Group (AiG) improved from –22.0 to –18.0; and the construction index fell from –7.1 to –18.7, weighing on the national currency.

In the US today at 15:15 (GMT+2), the ADP employment report is due, expected to show a 5,000 job increase after 42,000 previously. At 16:45 (GMT+2), the US services PMI from S&P Global will be released, forecast to remain at 55.0, followed at 17:00 (GMT+2) by the ISM services PMI, expected to decline slightly from 52.4 to 52.1.

USD/JPY

The US dollar is weakening in the USD/JPY pair, testing the 155.65 level to the downside. The yen is supported by November services PMI data from Jibun Bank, which showed an uptick from 53.1 to 53.2. On Friday at 07:00 (GMT+2), leading and coincident indicators will be released, followed at 01:30 (GMT+2) by household-spending data for October, expected to slow from 1.8% to 1.0%, potentially dampening inflation expectations and reducing the probability of Bank of Japan policy tightening in December.

Meanwhile, the US dollar remains under pressure ahead of the Federal Reserve meeting on December 10. Analysts expect a 25-basis-point cut to 3.75% and possible hints of further easing. Due to the government shutdown, November US labor-market data will not be released this week and will not influence the December rate decision.

XAU/USD

The XAU/USD pair is showing sideways movement, consolidating near the 4210.00 level as traders avoid opening new positions ahead of the December 10 FOMC decision. Markets are nearly certain that the Fed will reduce rates by 25 basis points to 3.75%, and this expectation is largely priced in. As always, investor focus remains on Fed commentary. Jerome Powell again addressed monetary-policy issues during his recent speech at Stanford University’s Hoover Institution.

The Fed Chair confirmed readiness to ease policy settings but stressed that future steps depend on incoming macroeconomic data. Today at 15:15 (GMT+2), traders await the ADP private-sector employment report (forecast: +5,000 after +42,000).

At 16:45 (GMT+2), the US services PMI from S&P Global will be released, expected to remain at 55.0, followed at 17:00 (GMT+2) by the ISM services PMI, forecast to edge down from 52.4 to 52.1. Gold is also supported by ongoing geopolitical risks, including possible US military action in Venezuela and developments in Eastern Europe, where analysts are closely monitoring attempts at renewed diplomatic talks.