Markets are focused on US macro data and Federal Reserve (Fed) communication, with November NFP expected to show weak job growth and a higher unemployment rate. Softer data or dovish Fed signals could revive expectations for a March rate cut, while Thursday’s European Central Bank (ECB) meeting remains the main external risk for short US Dollar (USD) positions, ING's FX analyst Chris Turner notes.

Fed speakers could reinforce dovish tilt

"In terms of the domestic US story this week, the focus will be on big data releases and key Fed speeches. The highlight is tomorrow's release of the November nonfarm payrolls (NFP) data. A soft number of +50k is expected, plus the unemployment rate edging up to 4.5%. Any softer-than-expected data here could bring forward pricing of the next Fed rate cut. We think the Fed can cut again in March, which is priced with just a 33% probability currently."

"We are also interested in key Fed speeches and particularly whether key figures see room for more cuts. We will hear from New York Fed President John Williams at 4:30pm CET today. He was influential in dovishly shifting market expectations ahead of last week's Fed rate cut. And on Wednesday, we will hear a speech on the economic outlook from Chris Waller – he's been a very influential Fed voice over recent years."

"The biggest threat to short dollar positions from overseas probably comes from Thursday's European Central Bank rate meeting, should eurozone growth forecasts not be revised high enough or President Christine Lagarde push back against thoughts of ECB rate hikes in 2026. For today, DXY can probably consolidate in a 98.00-98.50 range."