On Standby

December 02, 2025

Elias Haddad

USD recovers while bond and equity markets stabilize. No policy-relevant US economic data releases today.

Eurozone November inflation supports an extended ECB pause.

Demand for Japanese sovereign bonds encouraging.

USD bounced off mid-November lows yesterday but has yet to reclaim its 200-day moving average. 10-year Treasury yields steadied around 4.09% after rising nearly 10bps yesterday as heavy corporate borrowing drew demand away from government bonds. Merck & Co. led the wave issuing the largest share totaling $15.8 billion across the 20-30-and 40-year trances.

We expect USD to consolidate in the near term. However, narrowing US-G6 rate differentials suggests the path of least resistance for USD is down.

The contraction in US manufacturing activity unexpectedly deepened in November and argues for a December Fed funds rate cut, which is now virtually fully priced-in. The headline index slipped to a four-month low at 48.2 (consensus: 49.0) vs. 48.7 in October and details were poor:

(i) New orders-to-inventories ratio dropped below 1, suggesting firms may need to scale back production as supply exceeds demand.

(ii) The employment index fell to a three-month low at 44.0 vs. 46.0 in October, indicating increasing job losses.

(iii) Prices Paid index edged up 0.5pts to 58.5 but remains well below its June peak of 69.4, hinting at limited upside risk to inflation.

EUROZONE

EUR/USD is trading in a tight range around 1.1610. EUR/USD appears to have carved out a bottom at 1.1500, with next key resistance at 1.1644, the 100-day moving average.

The Eurozone preliminary November CPI supports the ECB’s on hold bias. Inflation is running slightly above the ECB’s 2% medium-term target. Headline CPI rose 2.2% y/y (consensus: 2.1%) vs. 2.1% in October, core CPI printed at 2.4% y/y (consensus: 2.4%) for a third straight month, and services CPI increased 0.1pts to a seven-month high at 3.5% y/y because of base-effect. On a month-over-month basis, headline CPI fell -0.3% vs. 0.2% in October driven by a -0.8% decline in services prices.

JAPAN

USD/JPY retraced most of yesterday’s undershoot triggered by Bank of Japan (BOJ) Governor Ueda juicing up December rate hike bets. Rising JGB yields is pushing up Japan’s debt servicing costs, limiting the BOJ tightening capacity and posing a headwind for JPY.

We anticipate the sell-off in JGBs to stabilize on improving demand from investors. The 10-year bond sale's average bid-to-cover ratio was 3.59 vs. 2.97 in November and a 12-month average of 3.20. A 30-year bond auction is due on Thursday.

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