FX Weekly

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USD buying momentum fades – a sign of a turn?

FX View:

The US dollar advanced through Wednesday but the buying momentum faded in the wake of weak US jobs data and the dollar (DXY basis) is now marginally weaker through this week as a whole. This week we highlight factors that led us to maintain our dollar bearish forecast into year-end despite the recent appreciation. The dollar selling yesterday on low-tier employment data highlights to us the benefit for the dollar from the vacuum in official labour market data. Most private sector data does point to labour market weakness and we maintain the release of NFP data will likely encourage renewed dollar selling. A risk here is that data doesn’t get released and the government shutdown drags on but then greater damage to the economy is likely and hence a shutdown becomes a bigger negative. This week we also look at pound performance following the BoE meeting and conclude underperformance will likely continue. Economic performance in Europe should improve as German fiscal spending hits the economy. We see scope for a EUR/USD rebound and further gains for EUR/GBP.

MIXED G10 PERFORMANCE WITH HIGH-BETA UNDERPERFORMING

Source: Bloomberg, 14.00 GMT, 7th November 2025 (Weekly % Change vs. USD)

Trade Ideas:

We are recommending a new short USD/JPY trade idea, and maintaining long EUR/GBP & short CAD/CHF trade ideas.

JPY Flows: High Frequency :

This week we assess the weekly portfolio flow data that revealed a recent record period of buying of Japanese equities.

Sentiment Analysis on the latest MPC Summary & Minutes:

Our text analysis of the Committee’s communication shows Governor Bailey’s language is already leaning dovish suggesting he is positioning for a cautious pivot towards backing another rate cut in December.

FX Views

USD: Does fading USD buying momentum signal a turn?

The US dollar (DXY basis) is now close to unchanged this week after the gains through Wednesday were reversed in a day following labour market data that prompted renewed concerns over the health of the US labour market. We have had numerous client queries over our near-term dollar forecasts given our levels are clear outliers from the current market consensus. We have had a EUR/USD year-end target of 1.19/1.20 since July and believe not enough has changed to warrant an adjustment lower. Of course, the dollar has advanced and 1.2000 now requires a notable sell-off over the remainder of November and December in order to realise the level but the move is easily achievable under certain assumptions.  

The 2-year UST bond fell 8bps yesterday, primarily on the back of the Challenger Job Cut Announcements data that revealed job announcement cuts of 153k in October – that was the largest October increase since 2003. On a year-to-date basis, Challenger data shows close to 1.1mn job cuts have been announced in 2025, which when 2020 is excluded is the largest over the Jan-Oct period of any year since 2009 during the Global Financial Crisis. Furthermore, when the data is viewed excluding the impact of DOGE and government sector job losses, it paints an even worse picture. Excluding government job cut announcements, the total surged to 145k in October, by far the worst total of any month since 2009 during the GFC when 2020 is excluded. What else can we garner from private sector data? The ISM employment reading remain below the key 50-level for manufacturing and services but the contraction has been diminishing. Indeed job advertisements data also indicates a weakening trend. Looking at the data on a weekly basis, the 4-week average hit a new low in October, hitting levels not seen since 2020. Revelio Labs – another private sector employment data source (using HR and payroll data) – revealed a 9.1k drop in employment in October, down from a 33k gain in September. It was the second drop in 2025 (other was May) although this data set only began in Feb 2021 so there is not much historical context. ADP did reveal a rebound in October (42k vs -29k in Sept) so while the data is somewhat mixed, the private sector data overall does clearly still point to continued weakness in employment and a pick-up in firing. Once the NFP data is released after this government shutdown ends, we see it as more likely the official data will continue to reveal a weakening trend in jobs growth.

One obvious risk in our view of potential renewed sell off of the dollar on the back of weak jobs data when released, is that the data doesn’t get released and the government shutdown drags on longer than expected and the dollar therefore continues to benefit. However, there are two problems with this risk. Firstly, the longer the shutdown drags on from here without resolution the greater the economic damage becomes and the worse investor sentiment on the economic outlook becomes. The CBO now estimates that if this shutdown was to extend for eight weeks in total the hit to GDP would be -2.0ppts on GDP in SAAR terms. There would be a rebound in growth afterwards but the net negative impact would still be greater than in previous shutdowns. A 4-8 week shutdown impacts GDP by a range of -1.0ppt to -2.0ppts. The CBO estimates a permanent loss of GDP between USD 7-14bn. Secondly, a deal to end the shutdown could emerge in the coming days. The win for Democrats in elections this week could encourage them to hold out for clearer commitments on extending Obamacare subsidies. A vote in the Senate offering a reopening with three appropriations bills may not be enough and Republicans may need to offer more, although whether Trump would be on board with Republicans shifting remains unclear. Either way, pressure will mount as flight disruptions spread and a resolution over the coming weeks looks likely that means the release of delayed data should unfold later this month.

CHALLENGER PRIVATE SECTOR JOB CUTS SURGE

Source: Bloomberg, Macrobond & MUFG GMR

OTHER PRIVATE SECTOR DATA SHOW WEAKNESS

Source: Bloomberg, Macrobond & MUFG GMR

Developments in trade policy will also be important for the dollar. Admittedly, the dollar reaction function is a little more ambiguous on this topic but we would assume increased economic policy uncertainty would be negative for the dollar. The Supreme Court hearings this week of the legality of IEEPA being used for reciprocal tariffs globally certainly revealed a high level of scepticism that points to the Supreme Court voting against the use of IEEPA and against Trump’s ability to raise new sources of tax revenues without the consent of Congress. We may get a ruling by year-end or early in the new year. The Trump administration is no doubt preparing for this scenario now and we suspect other trade acts will be utilised to replace lost revenue by as much as possible. The most obvious is Section 122 which would allow for a 15% tariff (max) to be implemented in order to address balance of payments deficits for a period up to 150 days. Given a large number of countries are currently under a 15% reciprocal tariff this looks the easiest immediate action for Trump to take. Of issue could be the countries that do not run deficits may have to be excluded. Legal challenges would be likely but it would buy the administration time to reassess alternatives.

So we still see scope for this easing of dollar buying momentum turning back to dollar selling. If EUR/USD was to trade to the mid-1.16 level by end-Nov, the seasonal bias that strongly favours higher EUR/USD in December makes our 1.20-level still achievable. The OIS market shows 17bps of cuts for the December FOMC and a fed funds of 3.08% by October 2026. We see scope of that level being achieved more quickly and weak payrolls data and renewed economic uncertainty fuelled by another bout of trade uncertainty would likely see a renewed drop in US yields. The failure of dollar gains to extend after the DXY technical break this week is a bearish signal.

USD SELLING IN DEC STRONG OVER 20YR PERIOD

Source: Bloomberg & MUFG GMR

DXY WILL RETRACE IF FED CUTS ON WEAK JOBS D

Source: Bloomberg, Macrobond & MUFG GMR

FX: GBP underperforms as European FX loses upward momentum

The European major currencies of EUR, GBP and CHF have been correcting lower against the USD over the last couple of months. It has resulted in cable falling back towards support at the 1.3000-level and EUR/USD towards support at the 1.1500-level while USD/CHF has risen back up towards the 0.8100-level. It marks a reversal of the strong gains recorded by European currencies at the start of this year. Even after the recent corrections lower, the CHF is still around 12% stronger against the USD than at the end of last year, and the EUR and GBP are still up around 11% and 5% respectively.          

The GBP has recorded the biggest correction lower over the last couple months lifting EUR/GBP up to the 0.8800-level while cable has fallen back to the 1.3000-level. The main driver of GBP underperformance amongst European major currencies has been the dovish repricing of BoE rate cut expectations. The 2-year gilt yield has dropped by around 20bps from the recent peak compared to a more modest decline for the 2-year euro-zone government yield of around 3bps and around 6bps for the 2-year Swiss government bond yield. In contrast, short-term yields in the US have been consolidating close to year to date lows. The narrowing of the GBP’s yield advantage has contributed to the weakening trend even though market conditions have remained supportive for carry trades in general. Measures of FX volatility have fallen to fresh year to date lows over the past month. There is a risk though that a deeper correction lower for AI/tech stocks could spill-over into a pick-up in foreign market volatility and encourage further selling of higher yielding currencies such as the GBP.       

The recent dovish repricing of BoE rate cut expectations was supported by the latest BoE policy update (click here). The BoE signalled that upside risks to their inflation outlook had diminished and left the door open for further gradual rate cuts. We expect the next BoE rate cut to be delivered as soon as next month given the vote to leave rates on hold this week was finely balanced (5-4), and key swing voter Governor Bailey indicated that he just wants to wait for more data to confirm softer inflation in September has been sustained. Two more CPI report for October and November will be released before the December MPC meeting. The BoE will also have the final details of the government’s budget plans to better assess their impact on the economic outlook. Unless there is significant upside inflation surprises, we expect Governor Bailey to vote for a cut in December tipping the majority of the MPC in favour of a rate cut. A December rate cut is not yet fully priced in (currently at around 17bps). We also expect a further 50bps of cuts in 2026 compared to market expectations which are closer to only one further cut. The main risk to our view for further GBP weakness would be if inflation proves to be less benign than expected.

EUROPEAN FX MAJORS LOSE UPWARD MOMENTUM

Source: Bloomberg, Macrobond & MUFG GMR

EUROPEAN FX MAJORS LOSE UPWARD MOMENTUM

Source: Bloomberg, Macrobond & MUFG GMR

Yields at the long end of the gilt curve have fallen even more sharply than at the short-end over the last couple of months. The 30-year gilt yield has dropped by just over 40bps compared to the decline of around 20bps for the 2-year gilt yield. It suggests that the move lower on long-term gilt yield is not just driven by the dovish repricing of BoE rate cut expectations and likely reflects as well an easing of investor concerns over the health of the UK public’s finances. A keynote speech from Chancellor Reeves this week has emphasized the importance of addressing the shortfall in the public finances even if the measures required prove unpopular. She reiterated her “iron-clad” commitment to the fiscal rules and emphasized that the upcoming budget would be guided by “fairness, opportunity and the national interest”.

The speech was widely viewed as setting the stage for tax hikes in the Autumn Statement potentially including breaking a manifesto pledge not to raise income tax. It will be harder to avoid raising income tax if the government sets out fiscal tightening measures to raise over GBP30 billion. Unlike the gilt market, the GBP has failed to benefit from the easing of UK fiscal concerns given fiscal tightening measures will dampen growth and create more room for the BoE to lower rates. If the fiscal tightening measures prove unpopular as expected with the public and within their own party, it will reinforce building internal pressure on the Labour party leadership. It has already been speculated that Prime Minister Starmer could face a leadership challenge. One potential catalyst would be bad results at next year’s local elections in May. A shift to the left for the Labour party could add to downside risks for the GBP next year.

Unlike the BoE, the ECB has reiterated recently (click here) that it believes monetary policy is in a “good place”. While not ruling out further rate cuts, there is no pressing need to lower rates further this year. A supportive development for the EUR in the near-term when the BoE and Fed are expected continue cutting rates into next year. We have pushed back our forecast for one final 25bps ECB rate cut to Q2 of next year. One area of ongoing concern is the disappointing performance of Germany’s economy. Industrial production bounced back less than expected (+1.3%M/M) in September following a sharp contraction (-3.7%M/M) in August. It could prompt a downward revision to the initial flat reading for German GDP growth in Q3 which if confirmed would be a second consecutive quarter of negative growth. The German government’s plans for significantly looser fiscal policy focusing on infrastructure investment and defence spending boosted investor optimism over the euro-zone growth outlook earlier this year. Market participants are watching closely to see if the uplift to growth materializes. Economic growth is currently expected to pick-up to 1.0% next year after negligible growth this year. The government’s fiscal deficit is expected to widen from around 2.3% of GDP this year up to 3.5% in 2026. Persistently weak growth in Germany is one of the downside risks for the ECB’s policy rate and the EUR.

SHORT & LONG-TERM GILT YIELDS MOVE TOGETHER

Source: Bloomberg, Macrobond & MUFG GMR

EUROPEAN EQUITIES LOSE UPWARD MOMENTUM

Source: Bloomberg, Macrobond & MUFG GMR

Weekly Calendar

Source: Bloomberg & MUFG GMR

Key Events:

• At the time of writing the longest US government shutdown on record is set to extend into next week continuing to delay US economic data releases. In the absence of US economic data releases, market participants are closely scrutinizing comments from Fed officials to assess the likelihood of another rate cut being delivered as soon as in December. Fed speakers in the week ahead include New York Fed President Williams at the 2025 US Treasury Market Conference, and Kansas City Fed President Schmid. The longer the US government shutdown goes on the more disruptive it will be for growth in the near-term. However, Fed Chair Powell has indicated that without more economic clarity the Fed is likely to be more cautious over cutting rates further in December.
• The release of the latest UK labour market is expected to provide further confirmation that labour market conditions remain weak. The loosening labour market supports our outlook for wage growth to slow further going forward helping to dampen upside inflation risks. The latest UK GDP data for Q3 will also be released. The BoE staff are forecasting economic growth to have increased by 0.3% in Q3. We expect the BoE to resume rate cuts as soon as at the next MPC meeting in December after delivering a dovish hold this week. By the December policy meeting the MPC will have more information on whether softer inflation has continued heading into year end and the final details of the UK government’s fiscal plans after the Autumn Statement is released later this month.                 
• The releases of the latest monthly activity data from China for October will provide an update on economic momentum at the start of Q4. It follows a slowdown in growth in Q3 after growth proved to be more resilient than expected during 1H of this year. Higher tariffs have proven disruptive for trade with the US but the negative impact has been offset by exports to other countries. The recent decision to extend the trade truce between China and the US and lower the tariff on imports from China by 10% will help to further dampen downside risks to growth going forward.