← Back to posts🧠Dovish Fed sinks USD as BoJ and SNB loom

🧠Dovish Fed sinks USD as BoJ and SNB loom

Published: 12/11/2025

Overall Market Sentiment:

Risk tone is constructive but a bit choppy after the Fed’s third straight 25 bp cut took the funds rate to 3.50 to 3.75 percent and the dot plot still showed only one cut pencilled in for 2026. The dollar index has slipped to around 98.6, EURUSD is up near 1.17, global stocks and bonds rallied on the decision, and the VIX is hovering near 16, consistent with a market that likes easier policy but is still watching growth and policy risks.


Gold is holding just above 4,200 dollars an ounce, Brent has eased toward 61 to 62 dollars, and Bitcoin is trading around 90,000, all very much in line with a softer dollar and slightly lower real yield environment rather than a pure panic regime.


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Currency outlooks



🔻 USD: Softer after dovish cut, risks still lean lower


The dollar index has dropped to roughly 98.6 after the Fed cut rates by 25 bp to 3.50 to 3.75 percent and kept its 2026 median rate projection at 3.375 percent, which implies only one cut next year even as markets still price more. The key for FX is that yields fell and the dollar weakened anyway, which suggests investors focused more on the easing that is already happening and on slightly lower inflation projections than on the “only one cut in 2026” message.


Over the past month the dollar index has drifted down toward the bottom of its recent range, while US 10 year yields hover just above 4 percent and 2 year yields sit in the mid 3s, leaving the curve only mildly inverted. That still gives the United States a yield advantage, but a smaller one, especially against economies whose central banks are now on hold or even talking about hikes.


Into the coming week, risks lean toward further mild USD softness if incoming data on activity and inflation do not challenge the easing narrative, with the dollar most vulnerable versus currencies that combine decent growth with relatively firm central banks. The main upside risk is a risk off shock or data surprise that forces markets to row back on 2026 cut expectations, which could see the index bounce within roughly the 98.5 to 100 zone that participants are watching.


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🔺 EUR: Two month highs as rate gap narrows


EURUSD is trading around 1.17, its highest in roughly two months, after the Fed cut pushed the dollar lower and further narrowed the interest rate gap with the euro area. November HICP is running about 2.2 percent year on year, core around 2.4 percent, with unemployment near 6.4 percent, which is very close to the ECB’s definition of price stability and supports the current wait and see stance.


The deposit rate sits at 2.0 percent and markets do not expect meaningful cuts until late 2026, while some longer horizon projections even entertain the idea of slightly higher rates if growth and inflation hold up. Relative to a Fed that is already easing, that keeps rate differentials from working against the euro and, at the margin, gives it a gentle tailwind.


Near term, risks point to modest further euro firmness against USD as long as euro data remain steady and the ECB next week simply reiterates its patient stance. Traders are broadly treating 1.16 as a support zone and 1.18 as the immediate resistance area that would come into view if US data continue to support lower yields and a softer dollar.


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🔻 GBP: BoE cut risk keeps sterling capped


GBPUSD is softer around 1.3365 in early European trading, giving back some of its post Fed gains as markets refocus on next week’s Bank of England meeting and another likely UK rate cut. Inflation has cooled toward 3.6 percent and wage growth has slowed, while fiscal plans still lean on higher taxes and consolidation, a combination that points to an economy growing but not booming.


Markets are pricing a high probability that the BoE trims Bank Rate from 4.0 to 3.75 percent at its upcoming decision and then eases further through 2026, which contrasts with an ECB that is on hold and a Fed that is trying to keep 2026 cuts limited. That policy mix and a still challenging medium term growth story tend to cap sterling on rallies, particularly against EUR and higher beta currencies.


For the week ahead, the risk tilt for GBP is mildly bearish, with cable likely to follow the dollar leg intraday but with a bias for underperformance on crosses if the BoE delivers another relatively dovish message while others signal patience or even hikes.


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⚖️ CAD: BoC pause balances softer USD and weak oil


USDCAD is hovering around 1.378, with the loonie near its strongest levels this month after the Bank of Canada held its overnight rate at 2.25 percent and signalled that the easing cycle is probably finished unless the data deteriorate again. The statement highlighted improved growth, inflation and jobs, describing the economy as “resilient overall,” which pushes back gently against market hopes for deeper cuts.


At the same time, oil is not providing a major boost: Brent futures are around 61 to 62 dollars, below recent highs, as markets weigh supply risks against signs of ample inventories and only moderate demand growth. With the Fed now easing and the BoC apparently pausing at 2.25 percent, relative rate expectations look roughly balanced between USD and CAD.


That leaves the near term risk bias for CAD broadly neutral. Solid domestic data argue for some resilience, but a still soft global manufacturing backdrop and soggy oil prices argue against significant CAD outperformance, with many participants treating roughly 1.37 to 1.40 in USDCAD as the operative range.


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🔻 CHF: SNB holds at 0 percent with inflation near zero


USDCHF is trading just under 0.80 and EURCHF is close to 0.94, leaving the franc very strong in real terms even as the Swiss National Bank held its policy rate at 0 percent again today. The SNB’s new conditional forecast sees inflation averaging about 0.2 percent in 2025, 0.3 percent in 2026 and 0.6 percent in 2027, firmly within its price stability range and not far from outright deflation.


Officials repeated that they want to avoid negative rates and still consider the franc strong, but are prepared to act if needed, which markets read as a willingness to tolerate some gradual weakening from these levels. With global risk sentiment reasonably positive and gold serving as an alternative hedge, there is little fresh safe haven demand for CHF at the margin.


Into next week, the risk skew for CHF leans toward mild softness, especially versus EUR, if the euro area remains stable and the ECB stays on hold while the SNB tries to gently lean against further appreciation.


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🔺 JPY: BoJ hike expectations and softer USD support the yen


USDJPY is trading around 156.0, still historically high for the yen, but the backdrop has shifted further in JPY’s favour after the Fed cut and as markets nearly fully price a Bank of Japan hike to 0.75 percent at the 18 to 19 December meeting. Polls now show a strong majority of economists expecting that move and even see rates at or above 1 percent by late 2026, which would take Japan closer to its estimated 1 to 2.5 percent neutral range.


As US yields fall on the Fed cut and Japanese yields creep higher, the interest rate gap that has driven yen weakness is starting to narrow at the margin, making JPY funded carry trades more sensitive to risk sentiment. For now, firm global equities and still positive differentials cap how far USDJPY can fall, but the balance has clearly shifted compared with earlier in the year.


Over the coming week, risks remain tilted toward episodic yen strength, particularly if data or BoJ commentary keep hike expectations firm or if equities wobble. Market focus is on the 155 area as first support and the 158 region as an upper band that, if retested, would likely revive talk of intervention or a stronger BoJ signal.


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⚖️ AUD: RBA hawkish, jobs soft, net effect is mixed


AUDUSD has slipped back toward the mid 0.66s after touching an almost three month high near 0.669, as weak November labour data offset some of the support from the RBA’s recent hawkish hold. The central bank kept its cash rate at 3.60 percent earlier this week and explicitly framed the choice set as “hold or hike” rather than “hold or cut,” with headline CPI around 3.8 percent and trimmed mean above 3 percent.


The jobs report showed total employment falling by more than 20,000 and full time positions dropping sharply, which takes some of the edge off the hawkish narrative and gives the RBA room to wait for more information. With the Fed now easing and China still soft but not collapsing, the relative rate backdrop is mildly supportive for AUD but not overwhelmingly so.


Overall, that leaves a neutral near term risk bias: AUD can stay reasonably well supported by RBA rhetoric and a weaker USD, yet the labour data argue against aggressively extrapolating recent gains, especially if global risk sentiment turns shaky.


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🔺 NZD: Kiwi pressing resistance with “hawkish cut” still in play


NZDUSD is trading close to 0.58 to 0.583, having breached key resistance around 0.58 as the softer dollar and the RBNZ’s “end of easing” message continue to underpin the kiwi. The OCR stands at 2.25 percent after last month’s cut, but the central bank’s projections show inflation near 3 percent now drifting back toward 2 percent by mid 2026, with the policy rate held flat for an extended period before edging higher again later in the decade.


Markets have treated that as a classic hawkish cut and likely trough for rates, which leaves New Zealand offering a relatively attractive yield profile within developed FX, even though the domestic economy is not booming and housing remains a drag. With the Fed easing and global risk appetite still decent, NZD trades as a high beta beneficiary of the current macro mix.


For the coming week, risks remain tilted toward further kiwi firmness, especially if NZDUSD can hold above the 0.58 area that technicians are watching as a breakout zone, while 0.57 has emerged as first important support.


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Cross-asset wrap



  • 🪙 Gold:
    Spot gold is hovering a bit above 4,200 dollars an ounce after the Fed cut, supported by lower real yield expectations and a softer dollar. The metal is behaving more like a steady macro hedge than a pure crisis asset, and tends to stay well bid as long as policy is easing and inflation forecasts remain contained.
  • 🛢 Oil:
    Brent futures are around 61 to 62 dollars, off recent highs, as traders weigh modest supply risks against evidence of a growing global surplus and only moderate demand growth. Prices at these levels support producers at the margin but still reinforce the global disinflation story, which matters more for rates and FX than the day to day moves in crude themselves.
  • 📈 Stocks:
    Global equities rallied into and after the Fed decision, with major US indices pushing higher as lower yields and a less hawkish than feared message provided a classic relief impulse, even though intraday volatility has picked up. The VIX around 16 fits a market that is broadly constructive but still buying some downside protection into year end.
  • ₿ Crypto:
    Bitcoin is trading near 90,000 after failing to hold above the 92 to 94k region, with price action again tightly linked to shifts in Fed expectations and overall risk appetite rather than to crypto specific developments. In this environment, crypto behaves like a high beta extension of the broader risk complex: easier policy and a weaker dollar tend to help, while any surge in real yields or a sharp equity correction would likely trigger outsized downside.



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