US
USD is trading heavy near the middle of its June-December range. USD is set for a choppy trading day as key US data hit the wire.
US November nonfarm payrolls (NFP) (1:30pm London, 8:30am New York). Consensus is looking for +50k job gains in November, which also incorporates the survey for October, following an increase of +119k jobs in September.
It’s not just the number of jobs gain that matters, but also which sectors are driving them. In September, the non-cyclical health care and social assistance sector contributed to nearly half the rise in NFP, underscoring the downside risk to labor demand.
Indeed, the decline in the hiring rate suggests labor demand is weak and points to downside risk to today’s NFP release. For reference, ADP private employment rose +15k while Revelio labs non-farm employment (private and public) fell -25k over October and November.
Also, Powell warned that NFP gains since April may be overstated by about 60k. So rather than averaging +40k job gains a month, the economy has actually lost -20k jobs per month since April.
Overall, weaker US labor demand will support Fed funds futures pricing 50bps of easing next year and undermine USD. In contrast, USD can recover some of its recent losses if there are signs that the slump in labor demand is stabilizing.
US October retail sales (1:30pm London, 8:30am New York). The retail sales control group used for GDP calculation is projected to recover by 0.4% m/m vs. -0.1% in September. Retail sales activity has held up well in the three months to September, growing at an above trend pace. However, the slowdown in labor demand points to looming pressure on household incomes and future consumption.
US S&P Global December PMI (2:45pm London, 9:45am New York). The composite PMI is expected at 53.9 vs. 54.2 in November, underscoring US private sector growth edge over other major economies. That can offer USD near-term support.
EUROZONE
EUR/USD is trading near its highest level since October 1. Eurozone PMI slips in December, but the growth outlook remains encouraging. The composite PMI fell more than expected to a three-month low at 51.9 (consensus: 52.6) vs. 52.8 in November due to a slight contraction in the manufacturing sector (attributable to German industry) and weaker momentum in the service sector (attributable to stagnant services activity in France).
In parallel, the German December ZEW investor economic sentiment expectations index improved to a five-month high at 45.8 (consensus: 38.4) vs. 38.5 in November, consistent with resilient economic activity.
The ECB is in a good place to keep rates on hold for some time while the Fed has more easing in the pipeline. As such, relative ECB/Fed policy stance underpins the uptrend in EUR/USD.
UK
GBP is outperforming. UK labor market condition continued to ease in October while the UK December PMI points to firmer private sector growth traction. The Bank of England (BOE) remains on track to deliver a rate cut on Thursday (93% priced-in) but the easing path ahead should remain gradual. We expect GBP to continue underperforming on the crosses.
The unemployment rate matched consensus at 5.1% (highest since Q1 2021) vs. 5.0% in September and job vacancies have fallen further. This has kept the vacancies-to-unemployment ratio well below its estimated equilibrium level (0.50), indicative of weaker labor demand.
Wage growth slowed but remains a key source of underlying inflation pressure given that labor productivity is estimated at -0.2% in 2025. The policy-relevant private sector regular pay fell to the lowest since late 2020 at 3.9% y/y (consensus: 3.8%) vs 4.2% in September. Finally, the composite PMI increased to a 2-month high at 52.1 (consensus: 51.5) vs. 51.2 in November, reflecting an improvement in services and manufacturing activity.
JAPAN
JPY is up against most major currencies. Japan PMI slips in December, but the growth outlook remains encouraging. The composite PMI dipped to 51.5 from a three-month high of 52.0 in November with services growth easing while the manufacturing sector contraction eased.
The Bank of Japan (BOJ) is widely expected to raise the policy rate 25bps to 0.75% (Friday). It will be the first rate hike since January. Comments about the neutral rate could offer clues about the extent of the normalization cycle. The BOJ currently estimates the neutral rate to be within a wide range between 1% and 2.5%.
Earlier this month, BOJ Governor Kazuo Ueda said the bank is trying to see if it can narrow down the range and it will make it public if it succeeds in doing so. A tighter neutral rate range would clarify the BOJ’s policy path and bode well for JPY. The swaps curve implies a policy rate of 1.50% over the next two years. We see room for USD/JPY to adjust lower towards the level implied by US-Japan two-year bond yield spreads around 140.00.
