← Back to posts🧠Fed cut, BoJ hike risk and RBA hawkish hold

🧠Fed cut, BoJ hike risk and RBA hawkish hold

Published: 12/9/2025

Overall Market Sentiment:

Markets are in a cautious but not stressed holding pattern as the Fed begins its two-day meeting, with about an 85 to 90 percent probability priced for a 25 basis point cut from 3.75 to 4.00 percent to 3.50 to 3.75 percent. The dollar index sits near 99.1, the MSCI World is fractionally lower on the day, the VIX is around the mid 16s and the S&P 500 is hovering just below recent record highs. Gold is circling 4,200 dollars an ounce, Brent crude is just above 62 dollars and Bitcoin is near 90,000, all consistent with an environment that expects easier policy but is braced for event risk this week.


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⚖️ USD: Fed cut almost locked in, tone drives the move



The dollar index is trading around 99.1, close to the lower end of its recent range after weeks of gentle weakening. Fed funds markets price roughly an 85 to 90 percent chance of a 25 basis point cut on Wednesday, which would be the third consecutive reduction, so the key question is how forcefully the Fed leans against expectations of a deeper 2026 easing cycle. The two-year yield is near 3.6 percent and the ten-year around 4.15 to 4.2 percent, so the curve is only mildly inverted and the United States still offers a moderate yield advantage, just less than earlier in the year.


Because the government shutdown delayed several October releases, policymakers are leaning unusually hard on the fresh November data cluster, which raises the odds of a careful, data-dependent message. Near term, risks are fairly balanced. A cut with firm guidance that further easing will be gradual could see the dollar bounce within the 98.8 to 100.0 index band, while a more dovish set of dots and language would likely extend the slow grind lower, especially against currencies whose central banks are now seen hiking in 2026.


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🔺 EUR: Firm euro meets soft dollar and “on hold” ECB



EURUSD is trading around 1.164, close to recent highs, helped by a softer dollar and a Eurozone inflation profile that is near target but not weak enough to force early cuts. Flash data put November HICP at about 2.2 percent year on year with core near 2.4 percent and services around 3.5 percent, while unemployment is about 6.3 to 6.4 percent, a combination that justifies the ECB’s current pause. The deposit rate is 2.0 percent and markets do not price meaningful Eurozone easing until well into 2026, and some investors are even starting to discuss modest rate hikes further out if real effective euro strength persists.


That backdrop compares to a Fed that is cutting now, so interest rate differentials are no longer clearly negative for the euro and may slowly turn supportive on a multi-quarter horizon. For the week ahead, markets are watching the 1.15 area as broad support and 1.17 to 1.18 as a resistance band that could come into view if the Fed delivers a clearly dovish cut and risk appetite holds up. Overall, the risk tilt remains slightly toward further euro firmness against the dollar, even if most EUR crosses stay more range bound.


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⚖️ GBP: Fed helps cable, BoE cut risk caps upside



GBPUSD is trading a little above 1.33, close to recent highs, supported by the weaker dollar and expectations that the BoE will soon be closer to the end of its own easing cycle. At the same time, markets still price roughly a 90 percent chance of another 25 basis point cut to 3.75 percent at the next BoE meeting, against a backdrop of headline inflation around 3.6 percent, softer wage growth and a tax-heavy Autumn Budget that weighs on growth.


That mix, looming monetary easing plus fiscal drag, tends to keep sterling capped on rallies against currencies with firmer domestic data and more hawkish central bank paths. For the week ahead, sterling direction is likely dominated by the Fed decision and the dollar side of the equation, which leaves the risk profile for GBP as broadly neutral. Cable can stay supported if the Fed is dovish, but UK-specific factors still argue against clear outperformance versus EUR and high-beta FX.


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⚖️ CAD: Better data balance earlier cuts, watching BoC tomorrow



USDCAD is around 1.385, with the Canadian dollar near a one-month high after strong recent labour and GDP figures tempered concerns about the BoC’s earlier double cut to 2.25 percent. The Bank of Canada meets tomorrow and is widely expected to hold at 2.25 percent, with many analysts seeing the October cut as likely the last for this cycle unless data deteriorate.


Brent crude around 62.5 dollars keeps Canada’s terms of trade supportive but not booming, which fits a story of modest, not explosive, CAD tailwinds. Relative to the Fed, both central banks are in easing territory but with BoC cuts already delivered and more US moves priced, the near-term risk balance for CAD looks fairly even. Resilient domestic data support some outperformance, while global trade and oil uncertainty still argue for a cautious attitude to further currency strength.


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🔻 CHF: Zero inflation and a stretched franc into SNB



USDCHF is trading close to 0.805 while EURCHF is near 0.939, levels that leave the franc very strong in real terms just as inflation has fallen back to zero. Swiss CPI printed 0.0 percent year on year in November and an underlying measure has slowed to a four-year low, a clear setback for the SNB just days before its final policy decision of 2025.


The SNB policy rate is already at 0 percent and is widely expected to remain unchanged, with officials signalling reluctance to return to negative rates even as they express discomfort with further currency appreciation. With global risk sentiment reasonably constructive and gold acting as an alternative hedge into the Fed, that combination leaves the near-term risk tilt slightly toward CHF softness, especially versus EUR, if Thursday’s meeting acknowledges the inflation undershoot and hints at tolerance for a bit more weakness.


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🔺 JPY: BoJ hike odds high, quake adds to caution



USDJPY is trading around 155 to 156, having pulled back from recent peaks as markets price a high probability that the BoJ will raise its policy rate from 0.5 to 0.75 percent at the 19 December meeting. Ten-year JGB yields have climbed toward about 1.9 percent, their highest level in almost two decades, and recent upside surprises in Tokyo core inflation support the argument that Japan is close to sustainably meeting the 2 percent target.


A strong earthquake in northeast Japan has also nudged investors toward caution, which can briefly support the yen through safe-haven flows, even though the main driver remains policy convergence with the United States. For the week ahead, the balance of risk still leans toward bursts of JPY strength if Fed communication is dovish or if BoJ officials continue to validate hike expectations, with markets watching the 155 area as a short-term pivot and 154 to 153 as a deeper support zone.


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🔺 AUD: RBA hawkish hold and data keep AUD supported



AUDUSD is trading near 0.664, its strongest level since October, after the RBA held the cash rate at 3.60 percent but warned that inflation risks remain tilted to the upside. Recent Australian data show annual headline CPI around 3.8 percent, trimmed mean a bit above 3 percent and domestic demand stronger than expected, which together explain why markets now see cuts as unlikely and even assign some probability to a hike in 2026.


With the Fed easing and the RBA taking a watchful, mildly hawkish stance, relative rate expectations now favour AUD on many horizons. Into a relatively light domestic calendar, the risk skew stays tilted toward continued resilience or modest further strength in AUD as long as global risk appetite remains stable and Chinese data do not deliver a major downside surprise.


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🔺 NZD: “Hawkish cut” message still underpins the kiwi



NZDUSD is trading around 0.578 to 0.579, close to recent highs, after the RBNZ cut the Official Cash Rate to 2.25 percent in late November but clearly signalled that the easing cycle is likely complete. The bank’s statement and projections show inflation near 3 percent now and expected to fall toward 2 percent by mid 2026, and the forward rate track keeps the OCR flat at 2.25 percent for an extended period before modest hikes later in the decade.


That is effectively a classic “hawkish cut” and markets have treated 2.25 percent as a likely floor, which is why NZD rallied even as rates were reduced. In the coming week, the kiwi will continue to trade as a high-beta expression of global risk and the Fed decision, but its relatively attractive yield profile within developed FX leaves the near-term risk tilt slightly toward further NZD strength on any combination of dovish Fed messaging and steady global sentiment.


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Cross-asset wrap


  • 🪙 Gold:
    Gold futures are trading around 4,210 dollars per ounce, consolidating just below record territory as traders balance the prospect of a Fed cut and softer dollar against slightly firmer nominal yields. The metal continues to behave as a hedge against policy and growth uncertainty rather than as a pure crisis barometer, and tends to stay underpinned as long as real yields are expected to drift lower over 2026.
  • 🛢 Oil:
    Brent futures sit near 62.5 dollars, in the lower half of this year’s range, with prices held in check by concerns over oversupply and only moderate demand growth even as geopolitical and production headlines occasionally add a small risk premium. At these levels, oil remains supportive for producers such as Canada while still broadly helping the global disinflation story rather than challenging it.
  • 📈 Stocks:
    The MSCI World index is fractionally lower on the day and the S&P 500 has eased back from record territory, as investors choose to reduce risk slightly rather than take large directional bets into the Fed, BoC, SNB and BoJ decisions. A VIX reading around 16 to 17 fits a backdrop of event-specific caution, not systemic stress.
  • ₿ Crypto:
    Bitcoin is trading close to 90,000 dollars after a small pullback, with recent moves closely tracking shifts in Fed expectations and broader equity sentiment rather than crypto-specific news. In general, expectations of easier policy and a weaker dollar support crypto as a high-beta risk asset, while any hawkish surprise from the Fed or jump in real yields tends to hit the space disproportionately.



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