• US November non-farm payrolls and CPI to shape Fed expectations.

• December PMIs to show if US growth continues to outpace peers.

• ECB, Norges Bank, and Riksbank on hold. BOE to cut while BOJ poised to hike.

USD dipped last week after the FOMC cut the Fed funds rate as expected but left two small dovish wrinkles. The FOMC nudged down its 2026 inflation projections and Fed Chair Jay Powell warned that payroll job gains since April may be overstated.

In our view, the FOMC has room to deliver the 50bps of easing priced-in by Fed funds futures over the next twelve months. US labor demand is weak and upside risks to inflation are not martializing. This week’s US November non-farm payrolls and CPI are key. We anticipate USD to trade lower and converge towards the level implied by US-G6 interest rate differentials.

US Jobs and Prices to Shape Fed Outlook

The November nonfarm payrolls (NFP) print is due on Tuesday. 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 this week’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.

US November CPI takes the spotlight on Thursday. Headline and core inflation are expected to remain sticky around 3% y/y in November, signaling stalled progress towards the Fed’s 2% goal. Nevertheless, upside risks to prices are not martializing and leaves scope for the Fed to ease policy. The ISM prices paid indexes point to moderating inflation pressures.

Other noteworthy US data on deck this week include: October retail sales (Tuesday), December PMI (Tuesday), and October TIC flows (Thursday). There’s also plenty of Fed speakers, notably the influential New York Fed President John Williams (Monday).

Three Holds, One Cut, One Hike

ECB is widely expected to leave the policy rate unchanged at 2.00% for a fourth consecutive meeting (Thursday). The statement and updated macroeconomic projections should highlight that the ECB is in a good place to keep rates on hold for some time. It will be interesting to see if ECB President Christine Lagarde pushes back against market pricing for rate hikes or shows she is comfortable with them; if she’s comfortable, it will give EUR a boost.

Ahead of the ECB rate decision, leading economic indicators will offer a timely update on the Eurozone growth outlook: PMI & ZEW survey (both on Tuesday), and IFO business index (Wednesday).

The Riksbank is widely expected to leave the policy rate unchanged at 1.75% for a second straight meeting (Thursday). The statement is poised to reiterated that “the policy rate is expected to remain at this level for some time to come.” The September Monetary Policy Report (MPR) showed the bank penciled in the policy rate at 1.75% until Q3/Q4 2026, followed by a 25bps hike over the subsequent two years.

The December MPR could see the Riksbank bring forward the timing of its first rate increase. That would be positive for SEK. The swaps curve price in a full 25bps rate hike to 2.00% in the next twelve months.

The Norges Bank is widely expected to leave the policy rate unchanged at 4.00% for a second straight meeting (Thursday). The Norges Bank is poised to reiterate that “the policy rate will be reduced further in the course of the coming year,” while stressing that “a restrictive monetary policy is still needed” because inflation is still too high. The September Monetary Policy Report (MPR) showed the bank penciled in 75bps of cuts to 3.25% by Q3 2028.

The December MPR could see the Norges Bank modestly trim rate cut projections. That would be positive for NOK. The swaps curve implies the policy rate to bottom between 3.50% and 3.75% in the next two years.

The Bank of England (BOE) is widely expected to resume easing with a 25bps cut to 3.75% (Thursday). The BOE kept rates on hold the last two meetings after cutting them in August. The Monetary Policy Committee (MPC) vote split may be tight: 5 in favor of a cut versus 4 supporting no change. More importantly, the BOE will likely stress again that “if progress on disinflation continues, Bank Rate is likely to continue on a gradual downward path.” That would undermine GBP on crosses.

Ahead of the BOE rate decision, the UK October labor market overview (Tuesday), December PMI (Tuesday), and November CPI (Wednesday) are due. November retail sales data comes out on Friday.

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.

Ahead of the BOJ rate decision, Japan’s Q4 Tankan survey (Sunday), December PMI (Monday), and November CPI (Thursday) are due.

Canada CPI to Keep BOC on Hold

Canada CPI is due Monday. Headline CPI is seen at 2.3% y/y vs. 2.2% in October while core CPI (average of trim and median CPI) is expected at 2.9% y/y vs. 2.95% in October. The Bank of Canada (BOC) projects headline and core inflation to average 2.0% y/y and 2.9% y/y over Q4, respectively.

At last week’s meeting, the BOC kept the policy rate unchanged at 2.25% as expected. The BOC emphasize again that it “sees the current policy rate at about the right level to keep inflation close to 2%.” The BOC leaned slightly against market expectations for rate hikes cautioning that “uncertainty remains elevated.” Still, the swaps curve implies a 25bps rate increase to 2.50% over the next twelve months. Bottom line: USD/CAD can edge lower before stabilizing between 1.3500-1.3600.

NZ Economic Check

New Zealand Q3 real GDP is the focus (Wednesday). Real GDP is expected to rebound by 0.8% q/q vs.-0.9% in Q2. The RBNZ Kiwi GDP model estimates Q3 GDP at 0.6% q/q and the business outlook survey points to further improvement in economic activity ahead.

The RBNZ signaled at its last November meeting that it’s done easing with a policy rate forecast implying no change until Q4 2026 followed by rate hikes in Q1 2027. The swaps curve is more aggressive and price-in 50bps of hikes over the next twelve months. Without positive data surprises, the RBNZ will struggle to deliver the hikes priced-in, and NZD upside will be limited. Next major resistance for NZD/USD is offered at the 200-day moving average (0.5861).