The dollar weakens on disappointing U.S. manufacturing data, while the euro gains momentum on positive German news.

USD Weakens

Dollar index fell by -0.52% on Friday, driven by weaker-than-expected U.S. manufacturing PMI and strength in the euro.

U.S. Nov S&P manufacturing PMI fell to 49.4, below expectations of 49.9, while services PMI rose unexpectedly to 50.8.

Markets discount a 5% chance of a +25 bp rate hike in the next FOMC meeting on Dec 12-13.

EUR/USD rose by +0.39% on Friday, supported by dollar weakness and a 4-month high in German IFO business climate.

German Nov IFO business climate rose +0.4 to 87.3, slightly weaker than expectations of 87.5.

ECB President Lagarde signals support for a rate hike pause, stating, "We have already done a lot on rates.

ECB Governing Council member Villeroy de Galhau sees "equal probability" of an ECB rate hike or cut in Q2 2024.

USD/JPY fell by -0.05%, with the yen posting modest gains on Japanese consumer price data.

Japanese national CPI rose +3.3% y/y, slightly below expectations, and Nov manufacturing PMI contracted at the steepest pace in 9 months.

Japan's Sep leading index CI revised upward to 108.9, and Nov national CPI ex-fresh food and energy eased to +4.0% y/y.