The dollar index (DXY00) on Monday rose by +0.25%. The dollar saw support from the rise in the Nov Empire manufacturing general business conditions index to a 1-year high. The dollar also had carryover support from last week when a parade of Fed presidents said they favored keeping interest rates steady, which reduced the chances of a Fed rate cut at next month’s FOMC meeting to 41% from 70% earlier this month.
The US Nov Empire manufacturing general business conditions survey unexpectedly rose +8.0 to a 1-year high of 18.7, stronger than expectations of a decline to 5.8.
The markets are discounting a 41% chance that the FOMC will cut the fed funds target range by 25 bp at the next FOMC meeting on December 9-10.
On the bearish side for the dollar, Fed Governor Christopher Waller on Monday reiterated his call for a rate cut at the December FOMC meeting due to his view that the US labor market is near “stall speed.” A noted dove, Mr. Waller is being considered by President Trump as the new Fed Chair to replace Jerome Powell, whose term as Fed Chair expires in May 2026.
EUR/USD (^EURUSD) on Monday fell by -0.27%. The euro is under pressure today from a stronger dollar. Also, comments on Monday from ECB Vice President Luis de Guindos weighed on the euro when he said financial stability risks in the Eurozone remain elevated. Monday’s action by the European Commission to raise its 2025 Eurozone GDP estimate was supportive for the euro.
Central bank divergence is also supportive of the euro, with the ECB seen as largely finished with its rate-cut cycle, while the Fed is expected to cut rates several more times by the end of 2026.
The European Commission raised its 2025 Eurozone GDP forecast to +1.3% from a May forecast of +0.9% and kept its 2025 Eurozone inflation forecast unchanged from May at +2.1%.
ECB Vice President Luis de Guindos said financial stability risks “remain elevated in view of uncertainty over geoeconomic trends and the ultimate impact of tariffs in a volatile international environment.”
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) rose by +0.43% and posted a new 9.5 month high. The yen was under pressure from Monday’s weak Japanese GDP report, which also sparked concern that Japan’s weak economy would bolster Prime Minister Takaichi’s case for an ambitious stimulus package that would substantially increase Japan’s debt burden. Monday’s upward revision to Japan’s Sep industrial production was supportive for the yen. Also, higher Japanese government bond yields were supportive for the yen after the 10-year JGB bond yield rose to a 17-year high of 1.74%.
