Euro Holds Firm on ECB Hawkishness

EUR/USD

• 1.1800 (EUR 1.99 bn)
• 1.1650 (EUR 976.48 mn)
• 1.1575 (EUR 892.51 mn)

USD/JPY

• 156.00 (US$ 1.67 bn)
• 155.00 (US$ 1.73 bn)
• 153.00 (US$ 778.82 mn)

GBP/USD

• 1.3500 (GBP 500.00 mn)
• 1.3050 (GBP 740.00 mn)

USD/CHF

• 0.8020 (US$ 180.00 mn)
• 0.7975 (US$ 100.00 mn)

USD/CAD

• 1.3940 (US$ 1.12 bn)

AUD/USD

• 0.6665 (AUD 301.57 mn)
• 0.6595 (AUD 400.22 mn)
• 0.6475 (AUD 864.67 mn)

NZD/USD

• 0.5730 (NZD 926.14 mn)

EUR/GBP

• 0.8845 (EUR 200.11 mn)
• 0.8590 (EUR 175.00 mn)

Justin prepared a weekly overview before leaving for the holidays here. For more information on how to use this data, you may refer to this post here. This article was written by Giuseppe Dellamotta at investinglive.com.

The euro stabilized around $1.165, near its strongest level since mid-October, supported by diverging expectations between the European Central Bank and the Federal Reserve.

Robust economic activity and inflation hovering close to target suggest the ECB is likely to keep interest rates steady through 2026.

November’s HCOB Eurozone PMI survey showed the fastest expansion in private-sector activity since May 2023, led by renewed momentum in the services sector.

Meanwhile, Eurozone inflation ticked up to 2.2% from 2.1% in October, slightly above market forecasts and the ECB's target of 2%.

In contrast, markets currently assign roughly a 90% probability that the Fed will deliver a 25-bp cut on Wednesday, with expectations for another two to three reductions next year as US data continues to signal a cooling labor market.

A rise in Treasury yields is the dominant feature in markets today. That's helped to lift the US dollar for its first gain in a week and is weighing on stocks. The S&P 500 is near a session low, down 18 points to 6832.

There are conflicting signals on deficit priorities in Washington. Trump has said he will use tariffs to pay down the +6% of GDP deficit but has also variously said he would give tariff money to farmers, factories or via $2000 checks to Americans.

On the economic side, the market is 85% priced for a Fed cut on Dec 10 and that dovish shift could be stoking inflation fears further out the curve. Notably, though, 2-year yields are also moving up and are at 3.53%, which isn't far off from the current Fed funds level of 3.75-4.00%. Lately though, US jobs data has been slipping.

In contrast, US retail sales data has been solid aside from pockets of weakness. Given the lack of US economic data, it's tough to say where the economy really stands.

For today, the dollar strength has weighed on EUR/USD, which is near a session low and down 20 pips on the day.

EUR/USD 10 mins This article was written by Adam Button at investinglive.com.

It's a relatively quiet start to the session with not much for traders and investors to work with. The overall risk mood remains more muted, even if European indices are posting modest gains to follow up the steady showing from yesterday. US futures are flat, so that's not providing much direction on risk appetite.

As such, major currencies are mostly caught in a bind with the dollar at least keeping steadier after a softer showing to start December. The only notable mover on the day is USD/JPY, which is just down 0.2% but starting to trickle below the 155.00 mark as mentioned earlier here.

Besides that, there is not much appetite across other major currencies with EUR/USD locked in by large option expiries while other major currencies are keeping only within 15 pips change of the dollar currently.

At the balance, the dollar is still keeping more vulnerable on the week but the slow bleeding has at least stopped for now.

The key risk events later in the day will be from US data with the Challenger job cuts and weekly initial jobless claims on the agenda. As a reminder, there will be no non-farm payrolls report this week. This article was written by Justin Low at investinglive.com.

Fitch Ratings expects the downside in the Indian rupee to be limited, projecting the currency to strengthen to 87 per dollar in the coming year. In its global economic outlook released on December 4, the agency said the rupee may settle at 87 by end-2026, compared with its earlier forecast of 88.5 for end-2025. Fitch sees the currency holding at similar levels through 2027.

The projection comes a day after the rupee hit a record low of 90.29 per dollar before closing at 90.19. The currency slipped further in early trade on December 4, touching 90.4 against the greenback.

Reserve Bank of India data suggests the rupee is undervalued. In October, when the currency traded near 89, the 40-currency Real Effective Exchange Rate (REER) stood at 97.47, marking the longest undervaluation stretch in eight years. Low domestic inflation has been a key contributor to the REER reading, alongside the rupee’s spot depreciation.

“Domestic inflation is very low currently, and that is a contributory factor to the REER falling below 100,” Dhiraj Nim, economist and forex strategist at ANZ, told Moneycontrol, adding that the trend may reverse once inflation edges up from April. He noted that India typically grows faster than its trading partners, and a REER of 102–103 would indicate a fairly valued currency. The current undervaluation, he said, supports export competitiveness.

Stronger growth, muted inflation to persist

Fitch has also raised India’s FY26 growth forecast to 7.4 percent from 6.9 percent, citing robust private consumption supported by GST and income-tax reforms. The upgrade follows India’s 8.2 percent GDP expansion in the second quarter—the strongest in six quarters.

Growth is expected to moderate to 6.4 percent in FY27 and 6.2 percent in FY28. Inflation, meanwhile, is projected to remain subdued at 1.5 percent this fiscal before rising to 4.4 percent next year.

With inflation falling sharply, Fitch said the Reserve Bank of India may have room for one more rate cut in December, taking the repo rate to 5.25 percent. This follows 100 basis points of cuts in 2025 and a reduction in the cash reserve ratio from 4 percent to 3 percent. The agency expects the RBI to hold rates steady for the next two years as core inflation begins to firm and growth remains solid.

The RBI’s Monetary Policy Committee will announce its rate decision on December 5. Economists say the rupee’s steep fall has complicated the policy outlook, with the MPC likely to weigh the interest-rate differential with the US Federal Reserve before deciding on further easing.

There are quite a number to take note of on the board for the day, as highlighted in bold below.

The big ones are for EUR/USD layered across 1.1600 through to the 1.1700 mark, with larger ones centered around the 1.1650 level. That should at least keep price action more concentrated in the current range, with a weaker dollar in general across also helping to keep the pair underpinned this week.

But with the larger expiries, that could limit price movements in the session ahead at least - before the expiries roll off later in the day.

As for USD/JPY, there is one at the 155.70 level. That ties close to the 100-hour moving average of 155.67 currently, so that could help to limit any upside extensions in the session ahead. However, the pair continues to look a little heavier since yesterday amid a softer dollar and the continually reinvigorated expectations of a BOJ rate hike this month. The latest on that from here.

For more information on how to use this data, you may refer to this post here.

Head on over to investingLive (formerly ForexLive) to get in on the know! This article was written by Justin Low at investinglive.com.