Soft USD

CAD

The Canadian dollar was a standout performer last week, bolstered by upbeat domestic data and the broadly weaker US dollar. Friday validated our view that consensus was too pessimistic: Canada’s November employment report showed a solid job gain instead of the slight decline expected. The loonie duly rallied on the news, driving USD/CAD to a five-week low by the week’s end. Firm oil prices and friendly risk sentiment added to the tailwinds. As we start this week, attention turns to Wednesday’s Bank of Canada meeting. We don’t expect a policy change, but we do anticipate a relatively hawkish tone given recent strong data and sticky inflation. That prospect should keep the Canadian dollar underpinned. With no significant Canadian data out today, the loonie will take its cues from broader market sentiment and commodity trends, likely remaining well-supported ahead of the BoC decision.

USD

The US dollar softened further last week, with the DXY index down about 0.5% as underwhelming US data and a risk-on market mood continued to weigh on the currency. With November’s official jobs report delayed by a government shutdown, traders seized on alternate indicators – from weak private payrolls figures to soft ISM surveys – to justify selling the dollar. By Friday the greenback was weaker against all G10 peers; high-beta currencies like the Aussie led the charge, and sterling wasn’t far behind. Looking ahead, no major US data releases today means attention is firmly on Wednesday’s pivotal Fed decision. We expect the FOMC to cut rates and potentially strike a dovish tone, which in our view will keep the dollar on the back foot. Unless global risk sentiment suddenly sours, the greenback is likely to remain under pressure into mid-week.

EUR

The euro extended its gradual climb against the dollar last week, largely thanks to broad USD weakness and improved risk sentiment. Eurozone data (like a slightly firmer November CPI reading) had minimal impact on the currency, as traders stayed focused on US developments and overall market mood. By Friday, EUR/USD was hovering near its highest level in months – more a reflection of dollar softness than a surge in euro optimism. Heading into today, aside from a couple of ECB speakers, the Eurozone calendar is quiet, so external factors should steer the euro. With the Fed meeting looming and markets leaning in a dollar-negative direction, we expect the euro to stay well-supported. Barring any unexpected jolt to sentiment, the common currency is likely to consolidate its gains and could even edge higher if the USD remains weak.

GBP

The British pound rallied to multi-week highs last week, riding the wave of broad dollar weakness despite persistent domestic headwinds. We had warned that the UK’s Autumn Budget (a significant fiscal tightening) could hurt sterling’s outlook, but those concerns were eclipsed by the global risk-on mood and a sagging dollar. By Friday, sterling had notched solid gains against both the USD and the EUR, making it one of the week’s top G10 performers. Looking to today, the UK calendar is quiet, so sterling will take its cues from broader market sentiment. Our focus remains on how conditions evolve ahead of the Fed meeting. We caution that the pound’s recent strength could prove fragile if global conditions deteriorate or if attention swings back to the UK’s challenges. For now, as long as risk appetite holds and the USD stays soft, we expect sterling to keep its gains intact.

This content was originally published by our partners at Monex Canada.