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Monday, January 05, 2026
What’s happening: The euro fell against the US dollar at the start of the new year, after recording sharp gains in 2025.
What happened: Investors responded to the latest economic reports released on Friday and focused on the monetary policy outlook from the Eurozone and the US.
The US dollar remained steady through the weekend, even as President Donald Trump approved a military operation to capture the Venezuelan President Nicolás Maduro.
Why it matters: The US dollar started the week with a rally, climbing to a more than three week high versus the euro, as forex traders largely looked past the capture of President Nicolas Maduro by the US and Venezuelan Vice President Delcy Rodríguez being sworn in as interim president.
The European Central Bank signalled that interest rates are likely to remain on hold for the time being, given resilient GDP growth and inflation rate coming close to the bank’s target.
President Donald Trump is expected to name a new Federal Reserve Chairman in May, raising speculations of a more dovish monetary policy stance. The Federal Reserve slashed its benchmark rates by 25 basis points in December, taking rates down 75bps in the year, amid elevated inflation levels and a cooling labour market.
Data released on Friday showed the HCOB Eurozone manufacturing PMI declined to 48.8 in December, from November’s reading of 49.6. The latest release came in lower than the preliminary reading of 49.2 and signalled the fastest contraction since March amid a plunge in output and new orders.
Germany logged the steepest decline in manufacturing activity, also recording the weakest performance since February. Spain and Italy also remained in the contraction zone, while France’s manufacturing activity bucked the trend to record its strongest growth since June 2022.
Eurozone’s bank lending to households surged 2.9% year-over-year to €7.094 trillion in November, signalling the fastest growth pace since March 2023 and beating market estimates of 2.8%. The acceleration in lending reflected a continued rebound in credit demand, following the recent monetary-policy easing by European Central Bank.
Strength in the US dollar weighed on the EUR/USD pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.1% to 98.43 on Friday.
The EUR/USD forex pair fell more than 0.2% to 1.1721 on Friday, while the EUR/GBP pair declined almost 0.3% to 0.8709.
What to watch: Investors will continue monitoring the ECB’s policy outlook, which is expected to provide direction to the Eurozone’s common currency.
Data on HCOB Composite PMI (1300 UAE Time) and HCOB Services PMI (1300 UAE Time) will be released on Friday. Analysts expect the HCOB composite PMI to decline to 51.9 in December from 52.8 in November, while the services PMI is projected to fall to 52.6 in December from 53.6 in the previous month.
Context: Equity markets in Asia rose this morning as investors digested the latest economic reports.
Details: Data released this morning showed Japan’s S&P Global manufacturing PMI rose to 50.0 in December from a preliminary reading of 49.7 and November’s final reading of 48.7. This marked the end of a 5-month contraction streak. The region’s manufacturing activity also surged to its highest level since June.
Japan’s Nikkei 225 jumped 2.76% to a two-month high of 51,728.77 this morning, as markets in the country reopened for its first trading session of the new year. Tech stocks were among the top performers, with shares of Kioxia Holdings gaining more than 8%.
Meanwhile, China’s RatingDog general services PMI declined to 52.0 in December from 52.1 in the previous month, in-line with market estimates. The recent reading signalled the softest growth in services activity since June, with new orders and business activity rising at their slowest pace in six months, following a decline in foreign sales.
The RatingDog China general composite PMI rose to 51.3 in December from 51.2 in the previous month, indicating growth for the seventh straight.
Shanghai Composite Index jumped 1.07% to 4,011.45 this morning, while the CSI 300 Index gained 1.44% to 4,696.78.
Hong Kong’s Hang Seng Index rose 0.21% to trade at 26,392.95, extending gains from the previous session and hitting a seven-week high.
What to watch: Investors will continue to monitor the impact of the US attack on Venezuela over the weekend.
Investors await the release of economic data on S&P Global composite PMI and S&P Global services PMI from Japan on Wednesday. Japan’s S&P Global composite PMI is expected to decline to 51.5 in December from a final reading of 52.0 in the previous month, while services PMI is projected to fall to 52.5 in December from a final reading of 53.2 in November.
Data on Japan’s average cash earnings and overtime pay will be released on Thursday. Japan’s nominal wages, which surged 2.6% year-over-year in October, are expected to rise by 2.3% in September. Analysts expect overtime pay rising 1.4% year-over-year in November following 1.5% growth in October.
Other Markets: US trading indices closed mixed on Friday, with the Dow Jones index and S&P 500 up by 0.66% and 0.19%, respectively, and the Nasdaq 100 down by 0.17%.
Russia launched overnight strikes on Kyiv, amid a step up in attacks on Ukraine, following the failure of a peace deal. The news sent the USD/RUB pair higher in forex trading this morning.
Thailand’s S&P Global manufacturing PMI jumped to 57.4 in December from 56.8 in the previous two months. This surging to the highest level since May 2023 exerted pressure on the USD/THB forex pair.
Mexico’s S&P Global manufacturing PMI declined to 46.1 in December from 47.3 in the previous month. Factory activity recording the sharpest deterioration since April sent the USD/MXN pair higher in forex trading this morning.
Colombia’s Davivienda manufacturing PMI slipped to 52.6 in December from 54.0 in the previous month, lending support to the USD/COP forex pair.
Singapore’s manufacturing PMI rose to 50.3 in December from 50.2 in the previous month. However, the USD/SGD pair gained in forex trading this morning.
Spain’s unemployment change (1200 UAE Time), UK’s consumer credit (1330 UAE Time), mortgage approvals (1330 UAE Time), mortgage lending (1330 UAE Time), M4 money supply (1330 UAE Time) and net lending to individuals (1330 UAE Time), as well as US ISM manufacturing PMI (1900 UAE Time), ISM manufacturing prices (1900 UAE Time), 3-month Bill auction (2030 UAE Time) and 6-month Bill auction (2030 UAE Time).
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