IC Markets – Europe Fundamental Forecast | 05 December 2025
What happened in the Asia session?
Asian markets opened subdued with declines led by Japan’s Nikkei erasing weekly gains amid rate hike speculation and caution ahead of U.S. PCE data. No major Asia-specific macroeconomic data releases occurred during the session; focus remained on prior U.S. jobless claims dropping 27,000 to a three-year low of 191,000, alongside China’s intervention to curb Yuan appreciation via state banks buying USD. European equities closed higher the prior day on banking and auto gains, influencing sentiment.
What does it mean for the Europe & US sessions?
Traders should focus on the U.S. Personal Income and Outlays report, including Core PCE Price Index, scheduled for release at 10:00 AM ET (3:00 PM GMT), as it provides the Federal Reserve’s preferred inflation gauge and could influence rate cut expectations amid recent labor market softening. European sessions may see limited major data, with attention on any spillover from yesterday’s mixed U.S. close and Asian declines, alongside global positioning for U.S. figures.
The Dollar Index (DXY)
Key news events today
Core PCE Price Index m/m (3:00 pm GMT)
Prelim UoM Consumer Sentiment (3:00 pm GMT)
Prelim UoM Inflation Expectations (3:00 pm GMT)
What can we expect from DXY today?
The Dollar Index (DXY) traded around 98.99-99.00, down slightly by 0.07-0.38% on the day and marking its worst week since July. It recovered modestly from earlier lows after better-than-expected US unemployment claims data provided some support, though ADP jobs and Challenger reports highlighted ongoing labor weakness.
Central Bank Notes:
- The Federal Open Market Committee (FOMC) voted by majority to lower the federal funds rate target range by 25 basis points to 3.75%-4.00% at its October 28–29, 2025, meeting, marking the second consecutive cut following the 25 basis points reduction in September.
- The Committee maintained its long-term objectives of maximum employment and 2% inflation, noting that the labor market continues to soften, with modest job creation and an unemployment rate edging higher. In comparison, inflation remains above target at around 3.0%.
- Policymakers highlighted ongoing downside risks to economic growth, tempered by signs of resilient economic activity. September’s consumer price index (CPI) came in slightly lower than expected at 3.0% year-over-year, easing inflation pressure but still warranting vigilance given tariff-driven price effects.
- Economic activity expanded modestly in the third quarter, with GDP growth estimates around 1.0% annualized; however, uncertainty remains elevated amid persistent global trade tensions and the U.S. government shutdown, which is impacting data availability.
- The updated Summary of Economic Projections anticipates an unemployment rate averaging approximately 4.5% for 2025, with headline and core personal consumption expenditures (PCE) inflation projections remaining near 3.0%, indicating a slow easing path ahead.
- The Committee emphasized its flexible, data-dependent approach and underscored that future policy adjustments will be guided by incoming labor market and inflation data. As in prior meetings, there was dissent, including one member advocating a more aggressive 50-basis-point cut.
- The FOMC announced the planned conclusion of its balance sheet reduction (quantitative tightening) program, intending to cease runoff in the near term to maintain market stability. Treasury redemption caps will remain steady at $5 billion per month, and agency mortgage-backed securities caps will remain at $35 billion.
- The next meeting is scheduled for 9 to 10 December 2025.
Next 24 Hours Bias
Medium bearish
Gold (XAU)
Key news events today
Core PCE Price Index m/m (3:00 pm GMT)
Prelim UoM Consumer Sentiment (3:00 pm GMT)
Prelim UoM Inflation Expectations (3:00 pm GMT)
What can we expect from Gold today?
Gold prices recovered on December 5, 2025, with spot gold reaching $4,201 per ounce, up 0.50% from the previous day’s low of $4,180. In India, December gold futures closed at Rs 1,30,000 per 10 grams of 24-carat gold, down slightly by 0.06%, while city-wise prices for 10 grams of 999 purity hovered around Rs 1,27,845.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
No major news event
What can we expect from EUR today?
The Euro (EUR/USD) traded around 1.1649 to 1.1673 on December 5, 2025, marking a modest 0.04% gain from the prior session amid stabilizing U.S. Treasury yields and a weaker dollar. This follows a recent surge to five-to-seven-week highs near 1.1680 earlier in the week, driven by dovish Federal Reserve expectations and eurozone business activity expansion.
Central Bank Notes:
- The Governing Council of the ECB kept the three key interest rates unchanged at its 30 October 2025 meeting. The main refinancing rate remains at 2.15%, the marginal lending facility at 2.40%, and the deposit facility at 2.00%. This decision reflects policymakers’ assessment that the current monetary stance remains consistent with medium-term price stability, while incoming data confirm a gradual return of inflation towards the target.
- Recent indicators point to stable price dynamics. Headline inflation remains near the 2% mark, with energy prices contained and food inflation easing slightly after earlier supply bottlenecks. Wage growth continues to moderate, contributing to the slowdown in domestic cost pressures. The ECB reiterated its commitment to a data-driven, meeting-by-meeting approach and emphasized flexibility amid uncertain global financial conditions.
- Eurosystem staff projections have not been materially altered since September. Headline inflation averages remain at 2.0% for 2025, 1.8% for 2026, and 2.0% for 2027. Recent softening in producer prices and subdued pipeline pressures suggest limited upside risks to inflation, though geopolitical tensions and potential commodity shocks continue to pose uncertainties to the outlook.
- Euro area GDP growth remains on track with earlier forecasts, projected at 1.1% for 2025, 1.1% for 2026, and 1.4% for 2027. Forward-looking indicators, including PMIs and industrial sentiment surveys, signal some stabilization in activity following weakness in the third quarter. Public investment and recovering export activity are expected to offset softer private sector demand in the near term.
- The labor market remains resilient, with unemployment rates at multi-decade lows and participation rates strong. Real income growth continues to support household spending, even as consumption growth normalizes from earlier highs. Financing conditions remain favorable, supported by stable banking-sector liquidity and improved credit demand among small and medium-sized firms.
- Business sentiment remains mixed, reflecting lingering uncertainty over global trade policy and the path of US tariffs. However, easing supply chain costs and improved export competitiveness due to softer exchange rates are providing some relief to manufacturing and external-oriented sectors.
- The Governing Council reaffirmed that future decisions will depend on an integrated assessment of incoming data—covering inflation trends, financial conditions, and the state of policy transmission. The Council emphasized that no pre-set path for rates exists; keeping all options open should the economic outlook shift markedly.
- Balance sheet reduction continues smoothly, with holdings under the APP and PEPP declining as reinvestments have ceased. The ECB confirmed that the pace of portfolio runoff remains in line with its previously communicated normalization plan, supporting a gradual withdrawal of monetary accommodation in a predictable manner.
- The next meeting is on 17 to 18 December 2025
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
CPI m/m (7:30 am GMT)
What can we expect from CHF today?
The Swiss franc is slightly stronger today, with USD/CHF trading just above the key 0.80 level as markets price in higher odds of U.S. rate cuts while Swiss data focus remains on upcoming inflation figures. Overall, sentiment is that the franc will stay relatively firm into year‑end unless Swiss inflation surprises sharply lower again. USD/CHF is hovering around the 0.80–0.81 area after slipping earlier in the week, reflecting modest franc strength against the dollar.
Central Bank Notes:
- The SNB maintained its key policy rate at 0% during its meeting on 25 September 2025, pausing a sequence of six consecutive rate cuts as inflation stabilized and the Swiss franc remained firm.
- Recent data showed a modest rebound in inflation, with Swiss consumer prices rising 0.2% year-on-year in August after staying above zero for three consecutive months; this helped alleviate fears of deflation that were mounting earlier in the year.
- The conditional inflation forecast remains broadly unchanged from June: headline inflation is expected to average 0.2% in 2025, 0.5% in 2026, and 0.7% in 2027. The risk of a negative rate move has diminished for now, but the SNB retains flexibility should inflationary pressures weaken again.
- The global economic outlook has deteriorated further, weighed down by heightened trade tensions—especially with the U.S.—and ongoing uncertainty in key Swiss export markets.
- Swiss GDP growth moderated in Q2 after a strong Q1 boosted by front-loaded U.S. exports. The SNB expects growth to slow and remain subdued, with forecasted GDP expansion between 1% and 1.5% in both 2025 and 2026.
- Labor market sentiment in the Swiss industrial sector has softened on concerns over export competitiveness and potential adjustments to production, but the overall growth outlook stays broadly unchanged
- The SNB reiterated its readiness to respond as needed if deflation risks re-emerge, emphasizing its commitment to medium-term price stability and a robust, transparent communication policy, with the introduction of more detailed monetary policy minutes beginning in October.
- The next meeting is on 11 December 2025.
Next 24 Hours Bias
medium Bullish
The Pound (GBP)
Key news events today
No major news event
What can we expect from GBP today?
The Pound is holding near recent highs after this week’s strong jump, supported by a softer dollar and expectations that the Bank of England will cut rates slowly, but price action today looks more like consolidation than a fresh breakout. Markets are watching upcoming US data and any Bank of England commentary for the next impulse, so intraday moves on Friday are likely to be headline‑driven rather than data‑driven.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) met on 6 November 2025 and voted 7–2 to keep the Bank Rate unchanged at 4.00 percent for a second consecutive meeting. The decision reflects the Committee’s cautious approach as inflation remains above target, but underlying economic momentum continues to weaken. Two members maintained their votes for a 25-basis-point cut, citing further signs of labor-market softening and weak business sentiment.
- The BOE adjusted its guidance on quantitative tightening (QT), maintaining the reduced pace established in September. The planned reduction of UK government bond holdings remains at £67.5 billion over the next 12 months, leaving the current gilt balance near £550 billion. Policymakers described the recalibrated QT path as “appropriate for current market conditions,” emphasizing the importance of liquidity management amid heightened volatility.
- Headline inflation moderated slightly to 3.6 percent in October from 3.8 percent previously, driven by easing food and transport prices. However, core inflation has shown only gradual progress, holding near 3.9 percent. The MPC noted that services inflation and administered energy costs continue to exert pressure, highlighting the challenge of achieving the 2 percent target sustainably. The Committee’s latest projections see inflation falling toward 3 percent by mid-2026, with further downside expected if energy and wage dynamics continue to normalize.
- Economic activity remains subdued. Estimates place Q3 GDP growth close to zero, with both business output and consumer spending restrained. The unemployment rate has edged up to 4.8 percent, while pay growth cooled to just under 5 percent year-on-year. MPC members acknowledged that pay settlements are weakening further, signaling an easing in labor cost pressures as demand softens. Surveys from the manufacturing and services sectors suggest muted hiring intentions through year-end.
- International factors continue to complicate the policy outlook. Fluctuating oil prices—partly linked to renewed Middle East tensions—alongside fragile global demand have contributed to higher market volatility. The MPC reiterated that external shocks, including global food and energy disruptions, could temporarily slow the disinflation path but remain unlikely to derail the medium-term moderation in prices.
- The Committee assessed risks around inflation as balanced. Downside risks arise from sluggish domestic growth and declining real income momentum, while upside risks remain tied to elevated inflation expectations and stubborn services inflation. Policymakers emphasized the need for patience, maintaining that any rate cuts ahead of clear inflation progress could undermine confidence in policy credibility.
- The MPC’s overall stance remains restrictive but increasingly balanced, with future moves expected to follow a cautious, data-driven trajectory. The Committee reaffirmed that monetary policy will stay tight until there is compelling evidence that inflation is returning to the 2 percent target on a durable basis.
- The next meeting is on 18 December 2025.
Next 24 Hours Bias
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
No major news event
What can we expect from CAD today?
Today, the Canadian dollar is trading slightly weaker near 1.39–1.40 per USD as markets await November jobs figures that follow strong October employment but softer recent PMI data. A soft labour print would reinforce the view of a cooling Canadian economy and a cautious Bank of Canada, likely weighing further on CAD, while a positive surprise could give the loonie a brief lift within its current range.
Central Bank Notes:
- The Council noted that U.S. tariff tensions have eased slightly following early progress in bilateral discussions, though the external trade environment remains fragile. Businesses continue to hold back on long-term investment, with the Bank highlighting that sustained clarity on U.S. trade policy is needed to restore confidence.
- The Bank acknowledged that uncertainty persists despite the softer U.S. tone, as incoming data show limited improvement in export orders. The manufacturing sector has stabilized but remains below pre-2024 output levels, reflecting weak global demand and cautious corporate spending.
- Canada’s economy showed tentative signs of recovery in early Q4, with GDP estimated to expand by 0.3% in October after two quarters of contraction. Mining and energy activity strengthened modestly, aided by steady crude demand, while goods exports posted a fractional gain.
- Service sector growth remained uneven, supported mainly by tourism-related and technology services. However, retail spending and household consumption were subdued, constrained by slower job creation and lingering consumer caution. The Bank judged overall momentum as fragile but improving marginally.
- Housing activity showed modest reacceleration in major urban markets as mortgage rates stabilized near record lows. Nonetheless, affordability pressures and stricter lending standards continue to limit overall resale volumes, resulting in only a gradual recovery in the housing sector.
- Headline CPI inflation rose to 2.1% in October, reaching the Bank’s target for the first time in six months. Higher energy prices and a modest uptick in food and shelter costs drove the increase. Core inflation measures remained stable, suggesting underlying price pressures are contained.
- The Governing Council reiterated its data-dependent stance, indicating that the current policy rate remains appropriate amid tentative growth and balanced inflation risks. Officials noted that while additional stimulus is not ruled out, the emphasis has shifted toward monitoring the sustainability of the recovery rather than immediate rate adjustments.
- The next meeting is on 17 to 18 December 2025.
Next 24 Hours Bias
Medium Bullish
Oil
Key news events today
No major news event
What can we expect from Oil today?
Oil is trading steady to slightly firmer today, with both Brent and WTI near recent two‑day highs and heading for roughly a 2% gain on the week as of early Friday, 5 December 2025. Prices remain capped by an expected supply surplus next year despite geopolitical tensions and hopes for easier Fed policy supporting risk assets.
Next 24 Hours Bias
Medium Bearish
