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🧠Dovish Fed and BoJ hike bets pressure dollar

Published: 12/12/2025

Overall Market Sentiment:

Global risk mood is upbeat. The MSCI All Country World Index and the S&P 500 have both notched fresh record highs, helped by the Fed’s third straight 25 basis point cut and still solid global growth data. Volatility is relatively low, with the VIX in the mid teens near 16, while the dollar index is drifting around 98, near the bottom of its recent range, as markets price more 2026 easing than the Fed’s own projections.


US jobless claims jumped to 236,000, the largest weekly rise since 2020, but the four week average is only slightly higher, so investors mostly see this as seasonal noise rather than a clear recession signal. Gold is consolidating just below recent highs near 4,280 dollars, Brent trades around 61 to 62 dollars, and Bitcoin sits close to 92,000, all consistent with a weaker dollar, lower real yield environment, and solid but not euphoric risk appetite.


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Currency outlooks



🔻 USD – post Fed bounce limited as cuts priced in


The dollar index is hovering around 98, down from above 99 earlier this month, after the Fed cut the funds rate by 25 basis points to 3.50 to 3.75 percent and signalled only one cut pencilled in for 2026. Markets are fading that guidance. Futures still imply a deeper easing path over 2026, which has pushed two year and ten year yields lower and narrowed the dollar’s rate advantage.


The jump in jobless claims to 236,000 has reinforced the narrative that the labour market is cooling at the margin, even if part of the move reflects seasonal adjustment issues. With global equities at record levels and the VIX around the mid teens, the dollar’s safe haven role is also less in demand.


Over the coming week, risks remain tilted toward further mild USD softness, especially against currencies backed by either a steady or tightening policy stance and decent growth. The main upside risk for the dollar would be a sharp risk off episode or a hawkish shift in Fed communication that forces markets to scale back 2026 cut expectations.


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🔺 EUR – two month highs as rate gap narrows


EURUSD is trading around 1.174, its highest level in roughly two months, as the softer dollar meets a Eurozone backdrop of inflation near target and a central bank firmly in wait and see mode. Headline HICP is about 2.2 percent year on year, core is near 2.4 percent, and unemployment is around 6.4 percent, a mix that looks like price stability rather than a problem needing aggressive easing.


The deposit rate at 2.0 percent is expected to be left unchanged next week, and markets do not price meaningful ECB cuts until late 2026, so the relative rate story has quietly shifted in the euro’s favour now that the Fed is cutting. In the short term, the euro tends to trade as the cleanest alternative to USD when global risk appetite is strong and US yields are edging lower, which is exactly today’s backdrop.


For the week ahead, risks lean toward modest further EUR firmness versus USD while the 1.16 area acts as broad support and 1.18 shows up as an initial resistance band that markets are watching.


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🔻 GBP – BoE cut risk keeps sterling on a short leash


GBPUSD is trading in the 1.337 to 1.34 region after a clean rally from early November lows, largely on dollar weakness, but sterling’s own story is more mixed. Markets now lean toward a 25 basis point BoE cut next week that would take Bank Rate from 4.0 to 3.75 percent, as inflation has eased toward 3.6 percent and recent UK data point to sluggish growth.


The Autumn Budget’s reliance on tax increases and fiscal consolidation also weighs on the medium term growth outlook and on domestic demand. That combination, looming easing plus fiscal drag, tends to limit how much investors reward sterling on rallies, particularly against the euro and higher yielding commodity currencies.


This week and next, cable is likely to be driven by the dollar side day to day, but the overall risk tilt for GBP is mildly bearish, with scope for underperformance on crosses if the BoE confirms a dovish tone while the ECB stays on hold and others, like the BoJ, move toward hikes.


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⚖️ CAD – BoC pause offsets soft oil and weaker dollar


USDCAD is trading around 1.377, near a three month low in the pair, as the Canadian dollar benefits from a neutral Bank of Canada and a softer USD. The BoC kept its overnight rate at 2.25 percent this week and described the economy as resilient overall, signalling that the earlier easing cycle is likely finished unless conditions deteriorate.


Oil is not giving CAD a huge boost. Brent futures are around 61.6 dollars, below recent peaks, as attention shifts back to Ukraine peace efforts and evidence of ample supply. With the Fed also easing, relative policy between USD and CAD looks fairly balanced for now.


Taken together, the near term risk bias for CAD is broadly neutral. The currency can stay resilient while USDCAD holds above the 1.37 support area, but softer oil and global trade uncertainty still argue against assuming a sustained outperformance trend.


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🔻 CHF – very strong franc and zero inflation after SNB


USDCHF trades just under 0.80 and EURCHF around 0.93, leaving the franc very strong in real terms even after this week’s Swiss National Bank meeting. The SNB kept its policy rate at 0 percent and updated its conditional inflation forecast to about 0.2 percent for 2025, 0.3 percent for 2026 and 0.6 percent for 2027, well within its price stability range and not far from deflation.


Officials reiterated their desire to avoid negative rates but again labelled the franc as strong and signalled a willingness to intervene if needed, which markets read as tolerance for some gradual CHF weakening from current levels. With global risk appetite firm and gold acting as a widely used hedge, safe haven demand for CHF is muted.


Into next week, risks look tilted toward mild CHF softness, especially versus EUR, as long as euro area data stay stable and there is no major shock that would suddenly revive haven flows.


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🔺 JPY – BoJ hike bets and softer USD support the yen


USDJPY is trading around 155.7, down from recent highs, as investors increasingly price a Bank of Japan rate hike to 0.75 percent at next week’s 18 to 19 December meeting. Polls of economists show a strong majority expecting that move and see rates rising to at least 1 percent by late 2026, while local bond yields have climbed to multi year highs on the prospect of further tightening.


At the same time, post Fed dollar weakness and lower US yields reduce the incentive to hold very large yen funded carry positions, making them more sensitive to any wobble in risk sentiment. Today’s slight JPY softness reflects the strong global equity tone rather than a shift in the policy story.


For the coming week, risks still lean toward a stronger yen on balance, particularly if BoJ communication continues to validate hike expectations or if equities pause after their record run. Market participants are watching the 155 area as a short term pivot and the 153 to 154 zone as deeper support that would come into focus if USDJPY extends lower.


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⚖️ AUD – RBA hawkish, jobs soft, net outlook balanced


AUDUSD has pulled back toward 0.663 after touching an almost three month high near 0.669, as unexpectedly weak November jobs data clipped some of the RBA driven optimism. Employment fell by about 21,000 and full time positions dropped, while the unemployment rate held around 4.3 percent, signalling a labour market that is loosening at the margin.


Even so, the RBA’s latest decision kept the cash rate at 3.60 percent and explicitly framed the debate as hold or hike rather than hold or cut, with headline CPI near 3.8 percent and trimmed mean above 3 percent, both above the 2 to 3 percent target range. That leaves relative yields still supportive for AUD versus low yielders, especially while the Fed is easing.


Given this mix, the near term risk tilt for AUD is neutral. The currency has fundamental support from a cautious RBA and a weaker USD, but the softer jobs data argue against assuming a straight line rally, particularly if global risk sentiment becomes more volatile.


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🔺 NZD – hawkish cut and weak USD keep kiwi bid


NZDUSD is trading around 0.582, holding above the 0.58 area after breaking through key resistance earlier this week, supported by broad USD weakness and the RBNZ’s clear signal that its easing cycle is near the end. The central bank cut the OCR to 2.25 percent in late November but its projections show inflation, currently about 3 percent, drifting back toward 2 percent by mid 2026 with the policy rate held broadly flat before edging higher again further out.


That is classic hawkish cut territory and markets have treated 2.25 percent as a likely floor for the cycle, leaving New Zealand offering a relatively attractive yield profile within developed FX despite a still soft domestic economy. With global risk appetite firm and the Fed easing, NZD is trading as a high beta beneficiary of the current macro mix.


For the week ahead, risks remain tilted toward further kiwi firmness, with many watching 0.58 as first support and the 0.582 to 0.585 region as an initial topside reference band.


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Cross-asset wrap



  • 🪙 Gold:
    Gold is consolidating just below seven week highs around 4,280 to 4,290 dollars an ounce, up roughly 2 percent on the week as investors respond to lower real yield expectations and a weaker dollar after the Fed cut. In this environment, the metal acts as a steady macro hedge rather than a pure crisis asset, and tends to stay supported as long as markets see a gradual easing cycle and contained inflation risks.
  • 🛢 Oil:
    Brent futures sit near 61.6 dollars, having slipped as attention returned to Ukraine peace efforts and signs of a comfortable global supply backdrop after a brief geopolitical spike. These levels help the global disinflation narrative and provide only a modest tailwind for oil linked FX such as CAD and NOK, rather than the kind of price shock that would reshape the inflation outlook.
  • 📈 Stocks:
    Global equities are at or near record highs. The MSCI All Country World Index has just posted a new peak and the S&P 500 closed at a record high for the first time since late October, while the VIX is around 15 to 16. The pattern fits a market that is leaning into the Fed’s easing, rotating a bit away from expensive AI names toward more cyclical sectors, yet still buying some downside protection.
  • ₿ Crypto:
    Bitcoin is trading near 92,000, with large BTC and ETH option expiries today adding to intraday noise and highlighting how much positioning and liquidity drive short term swings. In broad terms, crypto continues to behave like a high beta extension of the risk complex. Easier policy and a soft dollar are supportive, but any surprise jump in real yields or equity volatility tends to produce outsized downside moves.



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This is general, educational market commentary, explaining how macro data, policy expectations and sentiment are interacting across FX and major assets. It is not investment advice and not a trading signal.