:Dubai, UAE

Since the full flow of U.S. economic data has not yet been
restored after the shutdown, currency markets are focusing on the Federal Reserve. In addition
to the cut priced in for this week’s meeting, Trump hinted that political loyalist and ultradove
Kevin Hasset seems to be getting the nod to be the next appointee to led the US central bank.
Unsurprisingly, the dollar sold off against all its G10 peers except the Swiss franc. The franc
ended at the bottom of the table as investors traded away from safe havens and into risk assets.
The biggest losses among major currencies were seen in the Brazilian real, as markets saw
lower chances of a market-friendly administration following Bolsonaro’s decision to endorse his
son for president.
Enrique Díaz-Álvarez, Chief Economist at Ebury said: “This week, markets will fully focus on
the last Federal Reserve meeting of 2025 on Wednesday. Another cut in overnight rates, to
3.75%, is completely priced in by markets and we do not expect the Fed to surprise them.
However, uncertainty about the Fed’s communication tone is much greater. The dot plot
conveying each voting member’s view of the likely path for rates will be key, and a “hawkish cut”
could send the dollar back up to the top of its recent range. US labor data (JOLTS on Tuesday,
weekly jobless claims on Thursday) and a slew of October data from the UK on Friday will round
out the week.”
GBP
Sterling continues to rally on relief about the new UK budget, and mildly positive revisions to the
PMI indices last week certainly helped it finish the week ahead of all its European peers as well
as the dollar. Market expectations for Bank of England rates (one or at most two further cuts
with a terminal rate in the mid-3s) appear roughly correct to us, though we would lean towards
one cut rather than two. The combination of relatively high rates, modest economic growth and
a dovish Federal Reserve should keep the wind at the back of the Pound in the coming months.
EUR
An upward surprise in Eurozone November inflation supports our view that the ECB cutting
cycle has come to an end and the next move in rates is more likely to be up than down. A
positive revision to the November PMI numbers further confirms his prediction, as it removes
pressure on the central bank to provide further monetary stimulus. As the gap in rates across
the Atlantic continues to close, we expect the common currency to remain well supported into
2026.
USD
US labor market data continues to send mixed signals. The official data is relatively positive, if
lagged because of the shutdown. Weekly jobless claims fell to a new post-Covid low last week.
However, private data shows a more negative picture. At any rate, the data shows no sign of a
recession, and the AI investment boom continues to underpin the US economy. We think the
market may be getting ahead of itself by pricing in Fed cuts for 2026, and the FOMC dots plot
and general communications this week may start hinting in that direction. The committee’s
voting rotation will install four regional bank presidents, three of whom we expect to be rather

hawkish. An obviously political loyalist like Hassett will have a difficult time building consensus,
and we expect the Fed meetings to turn increasingly heated and riven by dissent as the months
go by.