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The US dollar ended last week lower, pressured by a mix of economic data and political developments. Among the key drivers were weaker macroeconomic indicators, comments from President Donald Trump, and reports about potential successors to Federal Reserve Chair Jerome Powell. Together, these factors reinforced expectations of a rate cut at the Fed’s December meeting, a move that would weigh further on the dollar and U.S. assets by reducing future returns.
Bloomberg reported that Kevin Hassett is emerging as a leading candidate to replace Powell. Hassett is seen as more dovish, which markets interpret as negative for the dollar. His candidacy also raises questions about the Fed’s independence, given his alignment with Trump’s push for lower rates. On Tuesday, Trump announced he would name a new Fed Chair in early 2026.
Economic Data
The ISM manufacturing PMI for November fell by 0.5 points to 48.2, its lowest in four months, defying expectations of a rise to 49.0. The prices-paid subindex unexpectedly rose to 58.5, signalling persistent inflationary pressures.
Labor market data showed further weakness: private payrolls shrank by 32,000 in November, the steepest drop in over two years, compared with forecasts of a 10,000 gain. Small businesses, which employ nearly half of America’s workforce, were hit hardest, cutting or freezing hiring amid rising costs and economic uncertainty.
Personal spending rose 0.3% month-on-month, in line with forecasts, while personal income climbed 0.4%, slightly above expectations. The Fed’s preferred inflation gauge, core PCE, rose 0.3% on the month and 2.8% year-on-year, broadly consistent with forecasts. These figures suggest inflation is easing modestly, bolstering the case for a rate cut.
Political Pressure on the Fed
Treasury Secretary Scott Bessent proposed new rules requiring regional Fed presidents to have lived in their districts for at least three years before appointment. He argued this would strengthen local representation, but critics see it as a way to increase White House influence over the central bank. His remarks came amid tensions with regional Fed leaders who oppose a December rate cut, a stance Trump has publicly criticized.
Global Outlook
The OECD kept its 2025 global growth forecast at 3.2% but raised its U.S. growth estimate to 2.0% from 1.8%, and the eurozone’s to 1.3% from 1.2%. Despite these upgrades, the dollar failed to benefit, weighed down by domestic factors.
Japan, Europe, and the UK
Bank of Japan Governor Kazuo Ueda hinted at possible rate hikes, boosting the yen and Japanese assets. Investors shifted into yen and Japanese bonds, driving U.S. Treasury yields lower and adding pressure on the dollar.
The euro gained against the dollar, supported by stronger expectations that the European Central Bank will hold rates steady while the Fed moves toward cuts. ECB President Christine Lagarde reaffirmed that inflation is converging toward the 2% target, while German Bundesbank chief Joachim Nagel said current rates are “well positioned.”
Sterling also strengthened, buoyed by fiscal measures from Chancellor Rachel Reeves, who unveiled a package of tax increases expected to reduce the UK budget deficit more than anticipated. A Reuters poll showed 80% of economists expect the Bank of England to cut rates by 25 basis points to 3.75% at its December 18 meeting, with another cut likely in early 2026.
Commodities
Gold slipped 0.5% to $4,197 per ounce, pressured by improved risk appetite as investors anticipated Fed easing. Normally, lower rates support gold, but in the short term, optimism about equities diverted flows away from the metal.
Oil rose about 3% on the week, helped by a weaker dollar and geopolitical tensions. Russian energy exports faced fresh disruptions from drone attacks and sanctions, while OPEC+ reaffirmed plans to freeze output increases through Q1 2026.
Cryptocurrencies
Bitcoin fell sharply, hurt by Chinese warnings about crypto risks and investor rotation into yen assets. The currency remains vulnerable to further declines if risk appetite deteriorates.
Looking Ahead
This week, all eyes are on the Fed’s final meeting of 2025. Markets overwhelmingly expect a rate cut, with odds above 90%. Jerome Powell’s remarks will be critical in shaping expectations for 2026.
Corporate earnings will also be in focus, with reports due from Oracle, Broadcom, GameStop, Costco, Adobe, and AutoZone. Meanwhile, key U.S. data releases include the trade deficit, jobless claims, and the federal budget update.
Together, these events will set the tone for markets heading into the new year, influencing bonds, equities, currencies, and commodities alike.
