US Dollar Strengthens as Global FX Markets React to Macro Data

Weekly US labour market data released yesterday showed a further cooling of employment conditions. Initial jobless claims rose to 236K, exceeding both the forecast of 220K and the previous reading of 192K. The four-week moving average increased from 214.75K to 216.75K, while continuing claims declined from 1.937M to 1.838M.

Overall, the labour market continues to show signs of cooling, strengthening the case for additional Federal Reserve rate cuts. However, policymakers remain cautious and have signalled the possibility of a pause in the easing cycle. The Fed’s latest dot plot implies only one rate cut next year. US President Donald Trump welcomed Wednesday’s 25bp rate reduction but would prefer to see a continuation of the dovish policy path, according to White House Press Secretary Karoline Leavitt.

Eurozone

The euro is strengthening against the pound and the yen but weakening versus the US dollar.

Investors and FX traders are assessing November inflation data from Germany, the EU’s largest economy. The consumer price index declined from 0.3% to –0.2% month-on-month and remained unchanged at 2.3% year-on-year. The harmonised CPI fell from 0.3% to –0.5% on a monthly basis and rose from 2.3% to 2.6% annually.

Inflation remains close to the European Central Bank’s 2.0% target, increasing the likelihood that interest rates will remain unchanged for an extended period. Meanwhile, Germany’s IFO Institute revised down its GDP forecasts: growth is now seen at 0.1% this year instead of 0.2%, 0.8% in 2026 instead of 1.3%, and 1.1% in 2027 instead of 1.6%.

US sanctions are expected to continue weighing on German exports, with shipments projected to slow by 0.3% this year and 0.6% next year. Analysts note that Germany is adapting too slowly and at excessive cost to ongoing structural changes.

United Kingdom

The pound is weakening against the euro and the US dollar but strengthening versus the yen.

UK GDP contracted by 0.1% in October, versus expectations for a 0.1% increase month-on-month. Annual growth slowed to 1.1%, below the forecast of 1.4%.

Analysts point out that services output remained flat, while construction activity fell by 0.3% and manufacturing declined by 0.5%, largely due to a slowdown in the automotive sector. The data increase the likelihood of monetary easing by the Bank of England at its December 18 meeting.

According to a Reuters poll, most economists expect the BoE to cut rates at that meeting, with another reduction to 3.50% potentially coming in March.

Japan

The yen is weakening against the euro, the pound, and the US dollar.

Industrial production data released today showed output rose by 1.5% in October, above the 1.4% forecast but below September’s 2.6% increase. The sector remains under pressure from higher US trade tariffs, although exporters are attempting to redirect shipments toward alternative markets.

Investors are preparing for the Bank of Japan’s monetary policy meeting next Friday. Most analysts expect a 25bp rate hike to 0.75%, although the central bank’s subsequent policy path remains uncertain.

With GDP contracting by 0.6% quarter-on-quarter and 1.8% year-on-year in Q3, policymakers may once again adopt a wait-and-see approach to assess the impact of previous measures.

Australia

The Australian dollar is strengthening against the yen and the pound, while showing mixed performance against the euro and the US dollar.

Next week, investors will focus on preliminary December business activity data. Forecasts suggest the services PMI will rise from 52.3 to 53.0, manufacturing PMI from 51.6 to 51.8, while the composite index is expected to ease slightly from 52.6 to 52.3, remaining at relatively elevated levels.

Overall, key sectors of the Australian economy continue to recover, reinforcing expectations that the Reserve Bank of Australia will maintain its current interest rate settings.

Oil

Oil prices are correcting lower under pressure from a sharp weekly increase in fuel inventories. According to the US Energy Information Administration (EIA), crude oil stocks fell by 1.812M barrels, while gasoline inventories surged by 6.397M barrels and distillate stocks rose by 2.502M barrels.

In addition, the possibility of a settlement in the Russia–Ukraine conflict raises the prospect of partial sanctions relief on Russia’s energy sector, potentially increasing global supply.

However, sharper losses are being limited by escalating tensions between the US and Venezuela, which could develop into a broader conflict. It was reported that the tanker Skipper was seized by US forces off the Venezuelan coast, while the US Treasury announced sanctions against six shipping companies involved in transporting Venezuelan crude.