Synopsis:

ANZ expects the USD to remain strong due to robust inflation and economic surprises but sees marginal risks from weakening US labor market signals. For the GBP, BoE policy and weakening UK PMIs may weigh on sentiment, though a year-end bounce toward 1.28 remains possible.

Key Points:

USD Outlook:

• US inflation and economic surprises remain positive, supporting USD strength.
• Weak US household survey data hint at potential labor market softening.
• The DXY may push higher into year-end before moderating toward 105.
• H1 2025 USD strength expected amid poor global growth and pro-USD US policies.

GBP Outlook:

• Heavy UK data week focuses on BoE’s easing cycle, with inflation and wage data critical.
• UK PMIs have deteriorated, suggesting economic headwinds.
• CFTC data shows reduced long GBP/USD positions, easing from October peaks.
• Mildly negative to neutral near-term outlook, with potential year-end upside toward 1.28.

Conclusion:

ANZ remains bullish on the USD into early 2025, citing strong US fundamentals despite emerging labor market concerns. The GBP faces near-term risks from BoE policy expectations and weakening PMIs, though a year-end recovery toward 1.28 is still possible.