Weekly FX Roundup: Global Data Softens and Europe Disinflates
Lamera Capital
2025-11-28
Market Overview: A Week Defined by Softer Global Momentum
This week’s data delivered a clear signal that global growth momentum is cooling. The United States saw a series of softer releases that challenged the strength of its recent macro outperformance. The Eurozone produced another round of disinflation against a backdrop of subdued confidence. Japan posted another downside inflation surprise that delayed any path toward policy normalisation. Risk sentiment remained cautious, and the dollar held firm within a broader consolidation pattern.
Against this backdrop, the UK narrative was shaped by the Budget and its immediate impact on monetary policy expectations. Markets are now fully priced for a December cut, but beyond the near term, structural uncertainties continue to cast a long shadow over sterling.
Against this backdrop, the UK narrative was shaped by the Budget and its immediate impact on monetary policy expectations. Markets are now fully priced for a December cut, but beyond the near term, structural uncertainties continue to cast a long shadow over sterling.
United States: Momentum Slips, but the Dollar Holds
The US delivered a softer week across several core indicators. Retail sales disappointed in all major categories, including the headline series, the control group and ex-autos. This raised questions about the sustainability of household demand, which has been the central driver of US growth in 2024 and 2025. Durable goods orders also undershot expectations, signalling a cooling investment cycle. Jobless claims edged higher again, pointing to a labour market that is slowly losing momentum.
While none of these releases represent a material turn in the cycle, they chipped away at the recent exceptionalism narrative. The dollar was stable rather than dominant, supported by relative macro strength but constrained by the softer tone in the data. The December Federal Reserve meeting now carries a more balanced outlook, with markets watching carefully for any adjustment to forward guidance.
While none of these releases represent a material turn in the cycle, they chipped away at the recent exceptionalism narrative. The dollar was stable rather than dominant, supported by relative macro strength but constrained by the softer tone in the data. The December Federal Reserve meeting now carries a more balanced outlook, with markets watching carefully for any adjustment to forward guidance.
Eurozone: Inflation Eases Again While Confidence Slips
Eurozone inflation was the main focus for markets this week. Regional German CPI figures were mixed but mainly on the downside, and this theme was reflected in eurozone headline and core inflation. Italy and Spain followed a similar pattern, reinforcing the sense that disinflation remains in progress across the bloc.
Business climate indicators and sentiment surveys provided further evidence of a fragile environment. Industrial confidence, services sentiment and the broader economic sentiment index all softened. The Eurozone continues to stabilise, but without the momentum needed to support a meaningful recovery.
The common currency held a narrow range. Softer inflation limits upside while the slower US data tone provides some counterbalance. The ECB remains cautious, but the easing path for 2025 is becoming clearer as price pressures continue to normalise.
Business climate indicators and sentiment surveys provided further evidence of a fragile environment. Industrial confidence, services sentiment and the broader economic sentiment index all softened. The Eurozone continues to stabilise, but without the momentum needed to support a meaningful recovery.
The common currency held a narrow range. Softer inflation limits upside while the slower US data tone provides some counterbalance. The ECB remains cautious, but the easing path for 2025 is becoming clearer as price pressures continue to normalise.
Japan: Tokyo CPI Undershoot Delays Normalisation
Tokyo CPI came in below expectations across both headline and core components. This undershoot reinforced the Bank of Japan’s preference to proceed slowly and avoid premature tightening. The yen weakened further after the release, adding support to USDJPY and EURJPY.
The broader market impact was consistent with previous months. A weak yen supports the dollar during periods of cautious sentiment and continues to anchor the G10 FX volatility profile. Japan remains the outlier in the global monetary landscape, and this week’s inflation data confirmed that policy normalisation remains some way off.
The broader market impact was consistent with previous months. A weak yen supports the dollar during periods of cautious sentiment and continues to anchor the G10 FX volatility profile. Japan remains the outlier in the global monetary landscape, and this week’s inflation data confirmed that policy normalisation remains some way off.
United Kingdom: Budget Politics, December Cuts and Deep Structural Risks
Budget and Monetary Policy
The UK Budget was the central domestic event and shifted the near-term path for monetary policy. Measures to part-fund the renewables levy and freeze fuel duty will lower inflation over the next year. Markets interpreted this as a clear signal that the Bank of England can move ahead with a December rate cut. The path is now fully priced, with an expected 25 basis point reduction taking Bank Rate to 3.75 percent.
The gilt market responded positively, with longer-dated yields easing and the curve stabilising. Rate expectations for 2026 also edged lower as investors concluded that tighter fiscal policy would support disinflation. The message to markets was simple. A slower economy combined with fiscal consolidation provides enough room for front-loaded monetary easing.
Growth, Fiscal Credibility and the UK Outlook
The Budget revealed very little focus on growth. Tax rises and higher spending will support near-term price stability, but they also reinforce a subdued long-term economic outlook. Structural pressures remain significant. Wage dynamics continue to evolve, energy policy is shifting and public sector demands remain elevated. These factors limit how far interest rates can fall in the coming years.
Several economists argue that the UK may face a higher inflation orbit compared to the previous decade. This does not imply runaway inflation, but it does suggest a higher floor that restricts deep policy cuts from the Bank of England. Markets recognise this and continue to project a shallow easing cycle beyond 2026.
PPP and the Long-Term Parity Risk
A deeper issue for sterling lies in long-term valuation. Purchasing Power Parity measures now place EURGBP fair value above 1.00, implying that the pound is structurally overvalued. While PPP is a slow-moving anchor, history shows that when the valuation gap has become this wide, subsequent corrections have been significant. The early 2000s and the post-2015 period provide clear examples.
This does not create an immediate parity call, but it highlights a vulnerability. The UK’s relatively low growth potential, modest fiscal space and periodic political volatility mean that risk premiums can widen quickly. PPP does not drive short-term price action, but it defines the medium-term direction when catalysts emerge. For now, sterling trades steadily, but the structural pricing still leans towards a weaker pound over time.
Budget and Monetary Policy
The UK Budget was the central domestic event and shifted the near-term path for monetary policy. Measures to part-fund the renewables levy and freeze fuel duty will lower inflation over the next year. Markets interpreted this as a clear signal that the Bank of England can move ahead with a December rate cut. The path is now fully priced, with an expected 25 basis point reduction taking Bank Rate to 3.75 percent.
The gilt market responded positively, with longer-dated yields easing and the curve stabilising. Rate expectations for 2026 also edged lower as investors concluded that tighter fiscal policy would support disinflation. The message to markets was simple. A slower economy combined with fiscal consolidation provides enough room for front-loaded monetary easing.
Growth, Fiscal Credibility and the UK Outlook
The Budget revealed very little focus on growth. Tax rises and higher spending will support near-term price stability, but they also reinforce a subdued long-term economic outlook. Structural pressures remain significant. Wage dynamics continue to evolve, energy policy is shifting and public sector demands remain elevated. These factors limit how far interest rates can fall in the coming years.
Several economists argue that the UK may face a higher inflation orbit compared to the previous decade. This does not imply runaway inflation, but it does suggest a higher floor that restricts deep policy cuts from the Bank of England. Markets recognise this and continue to project a shallow easing cycle beyond 2026.
PPP and the Long-Term Parity Risk
A deeper issue for sterling lies in long-term valuation. Purchasing Power Parity measures now place EURGBP fair value above 1.00, implying that the pound is structurally overvalued. While PPP is a slow-moving anchor, history shows that when the valuation gap has become this wide, subsequent corrections have been significant. The early 2000s and the post-2015 period provide clear examples.
This does not create an immediate parity call, but it highlights a vulnerability. The UK’s relatively low growth potential, modest fiscal space and periodic political volatility mean that risk premiums can widen quickly. PPP does not drive short-term price action, but it defines the medium-term direction when catalysts emerge. For now, sterling trades steadily, but the structural pricing still leans towards a weaker pound over time.
Cross-Market Sentiment: A Cautious Tone Beneath the Surface
Global equities traded in a tight range and bond yields drifted lower as investors digested the softer macro data. The overall tone was cautious rather than risk-off. Lower yields supported parts of the market, but the slowdown in data kept risk appetite contained. This backdrop helped keep the dollar supported while reinforcing the sense of consolidation across major currency pairs.
Lamera Capital View
GBP
Sterling remains stable in the near term, supported by the December rate cut and a slightly firmer gilt backdrop. The medium-term picture is more complex. Weak growth potential, modest political uncertainty and a significant valuation gap imply that sterling is vulnerable during any future stress episodes. Parity is not a base case, but the structural biases lean toward gradual depreciation over time.
EUR
The euro continues to stabilise but lacks the momentum for meaningful upside. This week’s inflation data confirmed that the disinflation trend remains intact, supporting the ECB’s cautious approach. EURUSD will continue to trade mainly on US data and global risk sentiment rather than domestic strength.
USD
The dollar is consolidating rather than reversing. Softer US data takes some energy out of the exceptionalism narrative, but the currency retains the cleanest macro foundation in the G10 space. Until growth trends weaken more decisively, US yields and the dollar should remain supported.