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🧠Fed cut odds and Japan hike risk steer FX

Published: 12/3/2025

Overall Market Sentiment

Global risk mood is cautiously positive. The MSCI World is nudging higher and US equity futures are modestly in the green, while the VIX sits in the mid teens near 16 to 17, signalling calmer conditions after the recent wobble. The dollar index is drifting lower around 99.0 to 99.2 as markets price a high probability of a Fed cut next week. Gold is steady just above 4,200 dollars an ounce, Brent trades around 62 to 63 dollars, and Bitcoin has bounced back above 90,000 after the latest selloff.

The macro tension is clear. Softer US manufacturing data, today’s ADP jobs numbers and key inflation data later this week keep easing expectations elevated ahead of the December 9 to 10 Fed meeting, while the Bank of Japan is openly debating a December hike and euro area inflation has ticked up to 2.2 percent with unemployment at 6.4 percent.

Currency outlooks

🔻 USD: softer data and heavy cut pricing cap upside

The dollar index trades just above 99, down from last week’s brief push toward 100, as futures now imply roughly an 80 to high 80s percent chance of another 25 basis point Fed cut at next week’s meeting, after earlier moves brought the target range down to about 3.75 to 4.00 percent. The Fed is operating with a partial data blackout after the government shutdown, but the latest ISM manufacturing reading below 50 and weaker private employment trends keep the narrative of a cooling economy intact.

With the policy rate already cut once in October and front end real yields drifting lower, the dollar’s interest rate advantage over other majors is narrowing, especially versus currencies whose central banks now look closer to the end of their easing cycles. At the same time, the dollar remains the main safety valve in any sharp risk off episode. A renewed selloff in equities or crypto could still produce short bursts of demand for USD, especially against high beta currencies.

Into next week’s meeting, the near term bias for USD is tilted toward further mild softness if labour and inflation data do not challenge current cut expectations. Many participants are treating the 99 area on the index as a key support zone and 100 as the short term ceiling.

🔺 EUR: firmer inflation and soft USD give a gentle tailwind

EURUSD is trading around 1.16, near the upper end of its recent range, helped by a softer dollar and euro area inflation that has nudged slightly above 2 percent. Flash November HICP shows headline inflation at 2.2 percent year on year and core near 2.4 percent, with services prices still firm, while unemployment is steady at 6.4 percent. This combination points to modest growth and no urgent need for aggressive ECB easing.

The policy rate sits around 2 percent and officials have described the stance as broadly appropriate, which fits with market pricing for no move at the December meeting and only limited cuts next year. In FX terms, that leaves the euro trading more as a mild beneficiary of dollar weakness than as a currency with a strong independent bullish catalyst.

Near term, if US data keep Fed cut odds elevated and risk sentiment stays steady, risks look tilted toward the euro grinding higher within a 1.15 to 1.18 band. Markets are watching the 1.1580 area as first support and the 1.1650 to 1.17 region as resistance into next week’s Fed decision and the later ECB meeting.

🔻 GBP: softer inflation and tight budget keep risks skewed lower

Sterling is fairly stable in dollar terms around 1.32 to 1.33, but the policy mix still argues for a mild downside tilt for the week. UK CPI slowed to 3.6 percent in October and the Bank of England kept Bank Rate at 4.0 percent at its November meeting on a narrow 5 to 4 vote to hold, which keeps markets focused on the risk of an initial reduction in the next few meetings.

The Autumn Budget leans on tax increases and fiscal consolidation to shore up public finances, a choice that tends to weigh on medium term growth expectations and domestic demand, even while the labour market remains relatively tight. EURGBP trades just under 0.88, close to the middle of this year’s range, reflecting a pound that is not under outright stress but that struggles to decisively outperform the euro.

With little top tier UK data in the coming days, GBP is likely to take its cue from US developments and overall risk appetite. The risk skew remains tilted toward a somewhat softer pound if markets firm up expectations for an early BoE cut or if global growth worries re-emerge.

🔻 CAD: early BoC easing and soft oil keep CAD heavy

The Canadian dollar is trading on the weaker side of recent levels, with USDCAD holding slightly above 1.40 as markets digest an early and relatively aggressive easing cycle from the Bank of Canada. The BoC cut its policy rate to 2.25 percent in late October, citing a cooling economy and inflation moving back toward the 2 percent target.

Q3 GDP surprised to the upside with growth rebounding after a contraction earlier in the year, but the detailed data show uneven momentum and an advance estimate pointing to softer activity into Q4. That keeps alive the discussion about whether more easing might eventually be needed. Oil provides only modest support. Brent around 62 to 63 dollars and WTI in the high 50s underline a softer terms of trade backdrop than in past commodity booms.

Into next week, CAD risks remain tilted toward underperformance, particularly against currencies with firmer central banks or stronger growth stories, as long as USDCAD holds within or above the 1.39 to 1.41 band that traders are monitoring.

🔻 CHF: very low inflation, slower growth and a stretched franc

The franc remains strong, with USDCHF trading a bit above 0.80 and EURCHF around 0.93, but the domestic backdrop suggests limited fundamental justification for much additional appreciation. Swiss CPI is running close to flat year on year and recent monthly readings have dipped slightly, leaving headline inflation near the bottom of the SNB 0 to 2 percent range, while the policy rate is around 0 percent.

Recent data point to sluggish growth and the central bank continues to signal that it is ready to lean against excessive currency strength if needed. With global volatility easing and risk appetite modestly constructive, near term safe haven demand for CHF is not particularly intense.

Over the coming week, the risk tilt is for a somewhat softer franc versus both EUR and USD if risk assets continue to grind higher and euro area data remain stable.

🔺 JPY: BoJ live hike risk keeps yen underpinned

USDJPY is trading around 155.5, off its recent peak but still historically high, as markets weigh a possible December rate hike from the Bank of Japan against a likely cut from the Fed. Tokyo core CPI is running close to 3 percent and nationwide inflation is also near 3 percent, which helps justify BoJ discussions about another step away from ultra easy policy.

Officials have said they will consider the pros and cons of a move at the December meeting and 10 year JGB yields are holding near multi year highs, which shows that markets are taking that guidance seriously. At the same time, the wide absolute rate gap with the United States still attracts carry flows, so intraday swings can remain two sided.

Overall, the balance of risks for the week ahead still leans toward a stronger yen in episodes where US data come in soft or risk sentiment wobbles. Many participants are watching 155 as a near term pivot and the 157 to 158 region as a resistance band that would signal markets are scaling back hike odds.



🔺 AUD: sticky inflation and cautious RBA keep AUD supported

AUDUSD is holding near 0.657, toward the top of its recent range, helped by a central bank that has clearly pushed back against expectations of rapid further easing. The RBA kept its cash rate at 3.60 percent in early November and recent data show headline inflation near 3.8 percent with core inflation around 3.3 percent, both above the 2 to 3 percent target band.

That mix leaves Australia relatively attractive on a yield basis compared with economies where cut cycles are more advanced, especially while global risk sentiment is stabilising and the dollar is soft. In the near term, risks for AUD look tilted toward continued resilience or modest appreciation, as long as Chinese data do not deliver a clear downside surprise and Fed communication remains consistent with an easing bias.

🔺 NZD: near end easing and better China data help the kiwi

NZDUSD is trading above 0.575 after pushing through earlier resistance, helped by both the recent near end style cut from the RBNZ and stronger Chinese services PMI data. The central bank lowered the OCR to 2.25 percent in November but signalled that policy is already very accommodative and that further moves will depend on how medium term inflation, currently near the top of the 1 to 3 percent band, evolves.

Markets have largely interpreted this as meaning the easing cycle is close to finished, which keeps relative yields in New Zealand appealing compared with some peers where rates are expected to fall further through 2026. Given that starting point, and with risk sentiment tentatively constructive, the near term bias for NZD leans toward further firmness, with 0.57 seen as first support and the 0.58 area as an initial topside reference.

Cross asset wrap

  • 🪙 Gold:
    Gold is holding just above 4,200 dollars an ounce after a small pullback, with rate futures still pricing a high probability that the Fed delivers another cut next week and investors using the metal as both a duration proxy and a macro hedge. As long as real yields edge lower and incoming data do not seriously undermine the easing story, the backdrop remains supportive even if day to day price action is choppy.

  • 🛢 Oil:
    Brent trades around 62 to 63 dollars a barrel, soft in historical terms as markets weigh geopolitical supply risks, higher inventories and concerns about oversupply into 2026. These levels reinforce a mild global disinflation narrative and tend to cap upside for oil linked FX such as CAD and NOK, even though prices are not low enough to trigger broad energy stress.

  • 📈 Stocks:
    Global equities continue to grind higher, with the MSCI World fractionally up and US futures modestly positive as markets lean into the Fed cut story and treat recent volatility as a consolidation near cycle highs rather than a clear trend change. The VIX around the mid teens supports the view of a market that is optimistic but still attentive to incoming data.

  • ₿ Crypto:
    Bitcoin has staged a strong rebound, trading around 91,000 to 93,000 after a sharp rally in the last 24 hours, with improving sentiment and renewed inflows pushing total crypto market capitalisation higher again. Price action continues to resemble a high beta response to easier Fed expectations and a softer dollar, so near term swings are likely to remain closely tied to US macro surprises and broader appetite for risky assets.


    This is general, educational market commentary, not investment advice or a trading signal. It is meant to help readers understand how current macro data, policy expectations and sentiment are interacting across FX and major asset classes.