US

USD is consolidating yesterday’s losses. Narrowing US-G6 rate differentials suggests the path of least resistance for USD is down. Fed policy is still restrictive and leaves scope for the Fed to deliver more easing. In contrast, most other major central banks have reached neutral policy settings and signaled an end to their easing cycle.

Yesterday’s US economic data deluge argued for the Fed to deliver a follow-up 25bps cut to 3.50%-3.75% on December 10 (80% priced-in):

Labor demand remains weak. The ADP weekly employment preliminary estimate showed private employers shed an average of -13,500 jobs a week for the four weeks ending November 8 vs. -2,500 for the four weeks through November 1. Moreover, consumers revealed ongoing concerns about job market conditions. The Conference Board labor differential index (jobs plentiful minus jobs hard to get) dipped to 9.7 vs. 10.3 in October and consumers’ jobs expectations over the next 6 months (more jobs-fewer jobs) printed at a multi-month low at -13 for a second straight month in November.

Consumer spending activity is starting to show cracks. The US retail sales control group used for GDP calculation unexpectedly fell -0.1% m/m (consensus: 0.3%) vs. 0.6% in August. Also, the Conference Board consumer confidence expectations index dropped sharply in November to the lowest level since April.

Upside risk to inflation has lessened. Trade Services PPI dropped to a 13-month low at 1.5% y/y vs. 2.9% in August, suggesting businesses are absorbing costs rather than passing them on to consumers.

Report that White House National Economic Council Director Kevin Hassett is seen as a frontrunner to succeed Fed Chair Jay Powell further weighed on the Fed funds futures curve. Hasset has consistently pushed for a more aggressive pace of Fed rate cuts, recently stating that he shares President Donald Trump’s view that rates can be “a lot lower.”

Powell’s term ends in May 2026 and his position as a Fed governor continues until January 31, 2028. If Powell steps down from the Fed, the Trump administration will have another opening to appoint a Fed governor.

The Fed Beige Book takes the spotlight today, offering anecdotal insights on the labor market (7:00pm London, 2:00pm New York). In October, the Beige Book highlighted that “demand for labor was generally muted.” The other data due today include: Weekly jobless claims and September durable goods orders (both at 1:30pm London, 8:30am New York).

UK

GBP and gilts are steady ahead of the UK Autumn Budget showdown (12:30pm London, 7:30am New York). To shore up the deteriorating fiscal position, the government is expected to prioritize tax hikes over spending cuts. The two key factors that will matter for GBP will be the extent of the projected fiscal drag next year (measured by the change in the cyclically adjusted primary budget) and the planned amount of total new gilt sales.

For reference, the Spring Budget (released in March) forecasted a cyclically adjusted primary budget balance of -0.6% of GDP for 2025/26 and 0% of GDP in 2026/27, implying a fiscal drag of -0.6% of GDP next year. Debt financing for 2025/26 was calculated to be met with £299.2 billion of total gilt sales. Analysts expect 2025/26 gilt sales to be increased by between £6bn and £15bn.

Bottom line: we expect GBP to keep underperforming most major currencies. Contractionary UK fiscal policy and disappointing domestic economic activity will leave room for the Bank of England to deliver more easing than is currently priced in (62bps in the next twelve months).

NEW ZEALAND

NZD outperforms after the RBNZ delivers a hawkish cut. As was fully priced in, the RBNZ trimmed the Official Cash Rate (OCR) by 25bps to 2.25%. The Committee voted 5-1 in favor of a cut, with the dissenter preferring no change. The OCR is now at the lower-end of the RBNZ’s new estimated neutral range between 2.2%-4.0%.

More importantly, the RBNZ signaled it’s effectively done easing. The RBNZ scrapped its easing bias and instead stressed that “future moves in the OCR will depend on how the outlook for medium-term inflation and the economy evolves.” Indeed, the RBNZ’s updated OCR forecast implies no change until Q4 2026 followed by rate hikes in Q1 2027.

Bottom line: NZD/USD can edge higher as the Fed delivers more rate cuts and global economic activity is resilient. Of note, new RBNZ Governor Anna Breman starts on December 1 while interim Governor Christian Hawkesby will leave the RBNZ on November 30.

AUSTRALIA

AUD/USD rallied back above its 200-day moving average. Australia October inflation ran hot and backs the RBA’s on hold guidance. Headline CPI rose to a 17-month high at 3.8% y/y (consensus: 3.6%) vs. 3.6% in September driven by housing, food and non-alcoholic beverages, and recreation and culture. The policy-relevant trimmed mean CPI unexpectedly increased to a one year high at 3.3% y/y (consensus: 3.0%) vs. 3.2% in September.

For reference, the RBA projects headline and trimmed mean annual inflation of 3.3% and 3.2% by December, respectively. Of note, the October CPI print is the first complete monthly measure of the CPI following the Australian Bureau of Statistics transition away from the quarterly report.

We remain constructive on AUD/USD. The swaps curve is betting on RBA rate hikes over the next year, in sharp contrast to the nearly 100bps of easing priced for the Fed.