← Back to posts🧠 Dollar steadies before CPI as central banks diverge

🧠 Dollar steadies before CPI as central banks diverge

Published: 12/18/2025

Overall Market Sentiment



The tone is cautious and slightly risk-off. The US Dollar Index is hovering around 98.3–98.4, near multi-month lows but trying to stabilise ahead of today’s delayed US CPI release. Volatility has climbed back into the mid-teens after a sharp rise in recent sessions, and equities have softened as markets reassess growth momentum into year-end. Gold is trading near 4,320 dollars an ounce, Brent is around the 59–60 dollar area, and Bitcoin is fluctuating in an 86,000–90,000 band, a mix that fits softer yields but rising macro uncertainty.





Geopolitics



Oil is being shaped by geopolitics and surplus worries at the same time. Brent futures are near 59–60 dollars after briefly dipping below 60, as signs of a 2026 supply glut and progress in Ukraine peace talks outweigh concerns around US enforcement of sanctions on Venezuelan exports.


For FX, cheaper crude marginally pressures petro-currencies like CAD and NOK but reinforces the global disinflation narrative, which supports lower long-term yields and reduces pressure on central banks to stay hawkish.


Markets are watching Brent around 59–60 dollars as a key reference area. A sustained break lower would further cement the view that energy inflation is fading, while any renewed spike from geopolitical shocks would quickly bleed back into inflation expectations and rate paths.





Currency outlooks



🔻 USD: Softer trend intact unless CPI surprises

The dollar index is fluctuating around 98.3–98.4, slightly firmer than yesterday’s lows but still close to the bottom of its recent range after the Fed’s third 25 bp cut left the funds rate at 3.50–3.75 percent. Futures still imply more easing by end-2026 than the Fed’s own projections, which has pulled the front end down and narrowed the dollar’s carry advantage even as long yields hover near 4 percent.


The latest jobs data showed only 64,000 payroll gains in November and unemployment up to 4.6 percent, consistent with a slow-burn cooling in the labour market that is hard to square with a renewed hiking cycle. Today’s CPI is the next big test, and the market reaction function is straightforward: upside inflation surprise equals a sharper pushback against 2026 easing, while a benign print keeps the “slowdown plus gradual cuts” narrative alive.


Into the week’s end, risks still lean toward gentle USD softness if CPI is close to expectations and incoming data do not challenge the easing story. A clear upside inflation surprise or a sharper risk-off shock would be the main catalysts for a rebound back toward the 99 area.


🔺 EUR: Supported by stable ECB and near-target inflation

EURUSD trades around 1.17–1.173, just off recent highs, supported by a softer dollar and a Eurozone backdrop of near-target inflation. With the ECB expected to stay patient, the euro retains a relative policy advantage versus a Fed that is already cutting, even if the ECB avoids sounding overtly hawkish.


For the week ahead, risks still lean toward modest further EUR firmness versus USD if US CPI and subsequent data support lower US yields. Participants are treating the 1.16–1.17 band as broad support and the 1.18 region as initial resistance, with the ECB tone the main near-term euro-side driver.


🔻 GBP: Inflation undershoot pulls BoE closer to first cut

GBPUSD is fluctuating around 1.336–1.337, softer than earlier in the week after UK CPI dropped to 3.2 percent year on year in November from 3.6 percent. That surprise dragged down rate expectations, and markets now nearly fully price a 25 bp cut today from 4.0 to 3.75 percent, following a narrow hold in November.


Core and services inflation also eased more than expected, signalling underlying pressures are cooling alongside a soft growth backdrop and rising unemployment. The fiscal stance, focused on consolidation and higher future taxes, still weighs on medium-term UK demand and complicates the case for a sustained sterling recovery.


Into next week, the risk tilt for GBP looks mildly bearish, especially on the crosses, if the BoE confirms a dovish bias while the ECB stays patient and the Fed narrative remains gradual easing rather than renewed tightening. The 1.33–1.34 area remains the key zone on GBPUSD.


⚖️ CAD: Solid domestic backdrop offset by cheaper oil and softer risk tone

USDCAD is trading near 1.377 toward the lower end of its recent range, as the loonie is cushioned by a BoC on hold at 2.25 percent and reasonably resilient domestic data, while softer risk sentiment and cheaper crude work in the other direction. Brent around 59–60 dollars is a modest headwind versus earlier in the year, since the surplus narrative caps oil-driven support.


For the coming days, that leaves a broadly neutral risk bias for CAD. The currency can stay relatively firm while USDCAD holds in the 1.37–1.38 corridor, but a decisive break likely requires a CPI surprise or a bigger swing in oil or global risk appetite.


🔻 CHF: Very strong franc, low inflation, and limited room to strengthen

USDCHF is trading just under 0.80 and EURCHF around 0.933–0.934, keeping the franc very strong in both nominal and real terms after its earlier rally. With inflation around zero and the policy rate already at the floor, the bar for sustained further CHF strength is higher unless markets move into a true stress regime.


With risk sentiment cautious but not in crisis territory and gold acting as the preferred hedge, fresh safe-haven inflows into CHF look limited at the margin. For the week ahead, risks are tilted toward mild CHF softness against EUR and possibly USD, especially if there is no sudden macro shock.


🔺 JPY: BoJ decision in focus as USDJPY hovers near 155

USDJPY is around 155.5, near the upper part of its recent band, as traders await the Bank of Japan decision. A hike and a signal of further gradual normalisation would keep the medium-term balance tilted toward episodic yen strength, particularly if US CPI underwhelms and brings Treasury yields lower.


A more cautious BoJ message, or a hawkish inflation surprise in the US, would swing that balance back toward USDJPY holding firmer near the upper end of the range. The 155 area remains a key pivot level, with 153–154 as the first downside zone if momentum turns.


⚖️ AUD: Hawkish RBA stance versus softer data and fragile sentiment

AUDUSD is trading near 0.660–0.661, clinging to support after a pullback from this month’s highs. The RBA’s hawkish “hold or hike” framing supports relative yields, but softer domestic indicators and fragile sentiment limit enthusiasm for a cyclical currency when global risk is wobbling.


Given this mix, AUD remains highly sensitive to the dollar leg and China headlines into CPI and the BoJ decision. Net-net, the near-term risk tilt looks broadly neutral around the 0.66 handle.


🔺 NZD: Supportive policy profile, but global drivers dominate

NZDUSD is hovering around 0.576–0.577 after dipping below 0.58 even as domestic growth news has been better than expected. The “hawkish cut” profile still helps on the margin, but recent price action suggests positioning and global risk appetite are dominating.


Looking into next week, risks are mildly skewed toward NZD resilience as long as US data do not force a sharp repricing higher in the dollar and China headlines do not worsen materially. Traders are watching roughly 0.575 as near-term support and 0.585 as first resistance.





Cross-asset wrap



  • 🪙 Gold: Gold is trading near 4,320–4,330 dollars, supported by softer real-yield expectations and policy uncertainty, behaving more like a macro hedge than a pure crisis barometer.
  • 🛢 Oil: Brent is trading around 59–60 dollars as surplus narratives and peace-talk headlines offset sanctions-enforcement risks.
  • 📈 Stocks: Equities have softened over several sessions as markets reassess growth and policy divergence into year-end, with volatility higher but not in stress territory.
  • ₿ Crypto: Bitcoin is chopping between the mid-80,000s and around 90,000, tightly linked to rate expectations and broader risk appetite.





This is general, educational market commentary on FX and macro assets. It is not investment advice and not a trading signal.