US Services PMI Data to Spotlight the US Dollar

While Japan’s Services PMI data supported bets on a BoJ rate hike, US Services PMI data will likely influence the Fed’s post-December rate path.

Economists forecast the ISM Services PMI to fall from 52.4 in October to 52.1 in November. A sharper drop in the headline PMI would signal a loss of economic momentum, given that services account for around 80% of US GDP. However, traders should also consider employment and price trends. Slower sector activity, rising job cuts, and higher prices may revive stagflation jitters and challenge bets on post-December Fed rate cuts.

Rising stagflation risks and a hawkish BoJ rate path align with my short- to medium-term outlook for USD/JPY.

Crucially, there are no FOMC member speeches to influence sentiment, with the Fed Blackout Period in effect until December 11, limiting Fed-driven volatility.

According to the CME FedWatch Tool, the chances of a December cut stand at 89.2% on December 2, up from 86.4% on December 1. Meanwhile, the probability of a January rate cut edged up from 23.0% to 25.7%. Sentiment toward first-quarter rate cuts will be key, given that markets are expecting BoJ and Fed policy adjustments in December.

Technical Outlook: USD/JPY on a Downward Trajectory

Looking at the daily chart, USD/JPY traded above the 50-day and 200-day Exponential Moving Averages (EMAs), affirming a bullish bias. However, fundamentals have begun to shift from the technical trend, supporting a bearish outlook.

A drop below the 155 support level would open the door to testing the 50-day EMA. If breached, the 153 support level would be the next key support. Crucially, a break below the 50-day EMA would indicate a bearish trend reversal, suggesting a near-term fall toward 150.

Above: P.M. Keir Starmer defends his budget in a speech delivered Monday. Picture by Simon Dawson / No 10 Downing Street.

Post-Budget relief for British pound, but a wary eye on the local elections in May.

The pound to euro exchange rate’s (GBP/EUR) rally has scope to run further say analysts at Barclays, who judge “last week’s budget generates scope for an, at least partial, unwind of the pound’s fiscal risk premium.”

In a weekly analysis, the investment bank’s FX team say this upside potential derives from a larger headroom, residual net short positions, and a positive risk backdrop into December.

It adds that “a relatively warm reception” by the Labour party to the budget is important to consider, in that it allays near-term risks of political instability.

“The back-loading of fiscal tightening implies execution and credibility risks, but we think these are already adequately priced,” says Barclays.

The pound has fallen steadily against the euro through the course of 2025, with losses accelerating in the summer as markets prepared for a tough budget.

Above: GBP/EUR remains in a downtrend, with the post-budget bounce faltering.

Fears were elevated that political pressures on Chancellor Rachel Reeves and Prime Minister Keir Starmer would result in a market-unfriendly budget.

In particular, there were concerns that the debt market would not take kindly to any budget that failed to address the country’s growing deficit.

But some £26BN in tax rises over the coming years restores the Chancellor’s headroom by £22BN, which is a relief to markets, if not the increasingly despondent UK taxpayer.

GBP/EUR Year-End 2025

Built from leading bank forecasts.

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The Bank of England is another key consideration for financial markets and the pound.

“Terminal rate pricing of just under 3.5% for Bank Rate (including a 25bp cut in December) also remains appropriate, in our view, as the macro outlook over the Bank’s policy horizon is largely unchanged,” says Barclays.

A terminal rate of 3.5% implies two further cuts in the cycle.

Marrkets are fully priced for a cut in December, with another falling by April 2026.

“If anything, aggregate demand is supported on the margin and confidence could also rebound as Budget uncertainty clears, thereby reducing the dovish tail for the pound,” adds Barclays.

In all, analysts expect EUR/GBP to edge closer to the rate differential-implied level (which is c.0.86) in the near term.

In GBP/EUR terms, that is 1.1630.

Further out, the next key milestone is the local elections in May 2026.

“With the market unlikely to be forgiving of further signs of fiscal slippage, such as in relation to the benefits cuts last summer, policy stability is a precondition for a more lasting rebound in sterling,” says Barclays.

With Labour set for a wipeout in local elections, pressure to change leaders will grow, making the installment of a devout left wing leader and Chancellor a clear risk for sterling in the year ahead.

– Written by


Ben Hughes

STORY LINK GBP/USD Forecast: Pound Sterling Rangebound Ahead of Key Services Data

The Pound to Dollar exchange rate (GBP/USD) traded within a narrow band on Tuesday, supported by increasingly dovish expectations for the Federal Reserve.

At the time of writing, GBP/USD was trading around $1.3194, almost unchanged from its opening levels.

The US Dollar (USD) struggled for direction on Tuesday as markets ramped up bets on a December Fed rate cut.

Pricing now implies an 87% probability of a 25bps reduction next week, with investors increasingly convinced the Fed will need to ease policy again as signs of cooling demand accumulate.

Dovish positioning was reinforced by reports that President Donald Trump may soon nominate Kevin Hassett — his top White House economic adviser — to replace Jerome Powell as Fed Chair when Powell’s term ends in May.

Hassett is widely viewed as favouring more aggressive interest rate cuts, fuelling speculation that the Fed’s easing cycle could accelerate in 2025 if he is confirmed.

These developments kept the US Dollar’s upside firmly capped, even as a modest pullback in risk appetite offered some limited support.

The Pound (GBP) lacked momentum on Tuesday, drifting in directionless trade amid a clear absence of UK economic catalysts.

With no major data releases to materially influence sentiment on the UK’s growth outlook or the Bank of England’s (BoE) next policy move, traders kept GBP positioning light.

Lingering uncertainty over the UK’s economic trajectory — and whether the BoE will deliver another rate cut in December — also contributed to Sterling’s subdued tone.

GBP/USD Forecast: Slowdown in US Services PMI to Drag on the Dollar?

Looking ahead to midweek trade, movement in the Pound to US Dollar exchange rate is likely to be driven by the latest ISM services PMI.

Following October’s strong rebound, November’s index is expected to show a cooldown in activity. A downside surprise — mirroring Monday’s weaker ISM manufacturing reading — could weigh heavily on the US Dollar by reinforcing expectations for further Fed easing.

In the UK, the final services PMI is expected to confirm a sharp slowdown in November as businesses paused hiring and investment decisions ahead of Chancellor Rachel Reeves’s autumn budget. This may keep the Pound contained even if USD sentiment softens.

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Created on December 02, 2025

• EUR/JPY pulled back early Monday but remains broadly supported, with buyers likely to step in on dips.
• The Bank of Japan’s inability to tighten keeps the yen weak, leaving the broader uptrend intact unless 175 breaks convincingly.

The Euro fell against the Japanese yen during early trading on Monday, but as you can see, we continue to see a lot of choppy behavior. And I think ultimately this is a market that will, given enough time, have to make a bigger decision. The short-term pullbacks really aren’t anything significant. I think what we’re looking at here is a situation where the market remains by on the dip. And I do think plenty of buyers are out there waiting to get involved. Keep in mind that the Japanese yen is backed by the Bank of Japan, which can do almost nothing to tighten monetary policy at the moment. And with this, I think you have a situation where, eventually, most currencies rise against the Japanese yen, even if we did fall from here, the 177.70 level is where the 50-day EMA currently resides and is rising. This should offer at least a little bit of support.

If We Break Down

Anything underneath there then opens up the possibility of a move down to the 175.50 yen level. Ultimately, this is a market that I think will eventually go to the 185 yen level, but I do believe ultimately this is a market that probably goes a lot higher than that as well. This will be especially true if we get more risk appetite out there. And especially if the Japanese finally admit that they cannot tighten things.

If we break down below the 175 yen level, then it is likely that the trend may change, but I just don’t see that happening at the moment. I believe that this is a story about the Japanese yen and not the euro, as we see most yen-related pairs moving in the same direction.

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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

Created on December 02, 2025

• The British pound briefly rallied before stalling near key moving averages, reflecting hesitation ahead of upcoming central-bank decisions.
• With rate-cut expectations in both the US and UK, the broader bias remains downward unless GBP/USD can break above 1.3350.

The British pound initially rallied during the trading session on Monday, but as you can see, we have turned around to show signs of hesitation. What I find interesting is that we find ourselves testing a couple of major moving averages at the moment, and we don’t seem to have the massive amount of momentum that would suggest that we are going to blow through these indicators. After all, the 50-day EMA and the 200-day EMA just below them both are important to traders, and it looks like they are in fact offering a little bit of a lid. The British pound has been falling since the middle of September, when we got the FOMC statement and press conference that got rid of the idea that the Federal Reserve is going to start cutting rates rapidly. Quite frankly, the inflation situation in the United States hasn’t been completely beaten. So, we’ll have to wait and see how long that takes to change the attitude of the FOMC.

Central-Bank Policy Crosscurrents

On the other side of the Atlantic Ocean, you have the United Kingdom, where, of course, the Bank of England almost cut rates at the last meeting but did not. And with that, the British pound did rally a bit, but the vote count was awfully close. And this does suggest that it is probably only a matter of time before we see rate cuts coming out of London. And therefore, if Washington, DC, cuts rates, and then London cuts rates, you essentially have no change. And I think that’s what you’re seeing here.

Ultimately, this is a market that I do favor the downside. But we need to see a little bit of a drop in order to start kicking up the momentum to drop to the 1.30 level in the short term. I think we’re just hanging around. And it is worth noting that we are only nine days away from the FOMC interest rate decision. So, there is going to be a lot of questions If we can break above the 1.3350 level now, I would anticipate that the pound is probably going to be very strong and go looking to the 1.38 level. Until then, I’m fairly skeptical.

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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.