Stock market volatility, nerves over valuations and the crypto crash are having no more than a modest spillover into currency markets. The dollar seems to be reprising its role as a safe haven, and last week it rose against nearly every major peer. The moves weren’t large, however, the ranges that have held since June are holding for now. The week’s losers were Latin American currencies, battered by the general flight to safety mood and a sharp drop in commodity prices. Both Latin American currencies and commodities generally remain among the years’ best performing assets, and recent selloff could be seen as no more than a healthy correction.
Enrique Díaz-Álvarez, Chief Economist at Ebury said: “This week is the Thanksgiving holiday in the U.S., and there will be little data of note, though the prolonged absence of releases due to the government shutdown means that retail sales data on Tuesday will be watched closely. The European calendar is notable mostly for its slate of ECB official speeches. This week’s focus will undoubtedly be the UK budget release on Wednesday. A measure of stability has returned to both the Sterling and Gilt markets recently, but there will be limited tolerance for gimmicks in the budget.”
USD
The delayed September labour market report surprised to the upside, suggesting that as of two months ago, the labour market had not yet stalled completely. 119k net jobs were created, though the separate household survey reported a slight increase in the unemployment rate, primarily caused by increased labour force participation.
Enrique said: “The drip of fresh economic news after the government reopening for now remains a tailwind for the dollar. We think fears about the impact of a stock market downturn on confidence and spending are exaggerated. U.S. stocks are only down to where they were less than six weeks ago and remain up 12% so far on the year.”
GBP
The UK saw a fairly dismal set of releases leading into next week’s critical budget release. Inflation remains closer to 4% than to 3%. Retail sales for October disappointed, and the Purchasing Managers’ Index of business activity stalled in November as sentiment in the services sector plunged. However, uncertainty remains regarding Reeves’ budget. After ruling out income taxes, it’s unclear if there will be enough room to raise other taxes sufficiently to reach the required GBP30 billion, particularly if, as seems likely, significant spending cuts are also off the table. Brace for volatility in Sterling this week.
EUR
The PMI indices of economic activity for November contained no surprises. The economy is still growing, albeit the dichotomy between a stagnant manufacturing sector and a more solid service sector remains. Although data lags, at least through the third quarter of 2025 the Eurozone as a whole continued to generate net jobs; however, as elsewhere, the rate of growth is coming down. Buoyed by a still healthy labour market, we expect the services sector to continue to support modest growth in the Eurozone and support the Euro.
