🧠Fed cut odds, BoJ hike bets steer FX

Published: 12/10/2025

Overall Market Sentiment:

Markets are in classic pre-Fed wait-and-see mode. The dollar index is holding just above 99, equity futures are flat to slightly softer, and the VIX is around 17 after edging up in recent days. Rate futures price roughly an 85 to 90 percent chance of another 25 basis point Fed cut later today, while spot gold trades close to 4,200 dollars, Brent sits just under 62 dollars and Bitcoin hovers around 92,000, signalling that investors expect easier policy but are also hedging around the event.

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⚖️ USD: Fed cut almost priced, tone is everything

The dollar index is trading a touch above 99, holding a modest rebound from last week but still near the lower end of its recent range. Fed funds markets assign roughly an 85 to 90 percent probability to a 25 basis point cut today, which would take the target range to 3.50 to 3.75 percent and mark the third cut of this cycle, so the surprise now lies in how strongly the Fed signals a pause for early 2026.

The yield curve is only mildly inverted, with two year yields around the mid 3s and ten year yields a little above 4 percent, so the United States still offers a rate premium, just less than earlier in the year. Because several October data releases were delayed or cancelled during the shutdown, policymakers are unusually reliant on the recent November cluster, which reinforces the case for data dependent and possibly cautious guidance.

For the very near term, risks look balanced. A so called hawkish cut that hints at a pause until at least March could underpin the dollar within roughly the 99 to 100 band, while a softer dot plot and rhetoric about downside risks would likely reopen the path toward gentle dollar weakness into year end, especially versus currencies with steadier or tightening central banks.

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🔺 EUR: Slightly firmer euro as ECB stays patient

EURUSD is trading in the mid 1.16s, up roughly 0.1 percent on the day and near the top of its recent range, helped by a softer dollar and a eurozone inflation profile that sits close to target without screaming for cuts. Flash November data put headline inflation at 2.2 percent year on year and core around 2.4 percent, with unemployment around 6.4 percent, a combination that fits an extended pause rather than imminent easing.

The deposit rate is 2.0 percent and recent messaging has framed policy as being in a good place, while market pricing pushes meaningful ECB cuts out into late 2026. Relative to a Fed that is already in motion, that keeps rate differentials from moving further against the euro and, on some horizons, gently tilts them in its favour.

Into the Fed and then next week’s ECB meeting, risks lean toward modest further euro strength versus the dollar if the Fed leans dovish and the ECB simply reaffirms a patient stance. Market participants are watching roughly 1.15 as broad support and the 1.17 to 1.18 zone as a reference band if the pair extends higher.

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⚖️ GBP: Fed driven cable, BoE cut risk still a drag

GBPUSD is trading just above 1.33, having ground higher in recent sessions as the softer dollar and slightly better UK survey data offset a still downbeat medium term outlook. The Autumn Budget removed some near term fiscal uncertainty but confirmed a path of tax increases and consolidation that weighs on growth expectations, even as PMI readings suggest the slowdown might be less severe than feared.

Markets price roughly a 90 percent chance that the Bank of England trims Bank Rate from 4.0 percent to 3.75 percent at its upcoming meeting and see about 50 basis points of cuts by next summer, given inflation around 3.6 percent and softening wage dynamics. That combination, looming easing plus fiscal drag, tends to cap sterling’s upside on a multi week view, particularly against currencies backed by stronger growth or more hawkish central banks.

Over this week, though, cable is likely to be driven more by the dollar side than by UK news, which keeps the near term risk profile broadly neutral. Sterling can stay firm against the dollar if the Fed is dovish, but its ability to outperform the euro or high beta FX still looks limited.

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⚖️ CAD: BoC on hold, data improving, oil only a mild help

USDCAD is trading near 1.385, roughly the middle of its recent range, as traders wait for the Bank of Canada’s decision later today. After taking the policy rate down to 2.25 percent in October, the bank has strongly hinted that it is now pausing, and surveys show almost universal expectations for an unchanged decision, helped by stronger data such as third quarter GDP at an annualised 2.6 percent and a drop in unemployment to 6.5 percent in November.

Oil is not a major swing factor at current levels. Brent futures are just under 62 dollars and longer term forecasts see prices drifting down from 2025 averages as supply growth outpaces demand, which supports the Canadian dollar relative to very low oil regimes but is a far cry from a boom. With the Fed also easing, the relative policy story between the US dollar and the Canadian dollar looks fairly balanced for now.

For the week ahead, that leaves a neutral risk tilt. Better domestic data and a likely Bank of Canada pause argue for some resilience in the Canadian dollar, while the earlier and deeper easing cycle and global trade uncertainty still argue against aggressive appreciation, with many watching the 1.37 to 1.40 USDCAD corridor as the operative zone.

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🔻 CHF: Strong franc into zero inflation and cautious SNB

USDCHF is trading around 0.806, near the top of its recent micro range but still historically low, while EURCHF sits just under 0.94, leaving the franc very strong in real terms. Swiss inflation has effectively fallen back to zero, with headline CPI at 0.0 percent year on year in November and underlying gauges at multi year lows, only days before the Swiss National Bank’s final decision of 2025.

The policy rate is already at 0 percent, and while officials have shown little appetite to return to negative territory, they continue to flag discomfort with further currency strength and retain the option of foreign exchange intervention. With global risk sentiment reasonably constructive and gold acting as an alternative hedge, fresh safe haven demand for the franc is limited at the margin.

Near term, this combination keeps the risk tilt leaning toward a somewhat softer franc, especially versus the euro, if the SNB acknowledges the inflation undershoot and signals tolerance for a bit more weakness while the ECB simply stays on hold.

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🔺 JPY: BoJ hike odds above 75 percent, yen capped by risk appetite

USDJPY is trading in the mid 156s to high 156s, close to recent highs, as markets balance a soft dollar with strong expectations that the Bank of Japan will raise rates at its December 18 to 19 meeting. Pricing now implies more than a 75 percent chance that the BoJ lifts its policy rate from 0.5 percent to 0.75 percent, a notable shift after decades of ultra easy policy, while ten year JGB yields hover near 1.9 percent.

This narrowing prospective gap with the Fed, which is expected to cut again today, would normally favour a stronger yen, but firm global risk appetite and still positive rate differentials in favour of the US dollar keep carry trades attractive and cap yen gains for now. In addition, recent Japanese earthquake headlines have added a small safe haven element to yen demand without fundamentally changing the policy story.

For the week, risks still lean toward yen strength in episodes where the Fed sounds dovish or risk sentiment wobbles, with many watching roughly 154 to 155 as a first support area and 158 to 159 as a topside zone that would likely increase talk of intervention or a more forceful BoJ signal.

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🔺 AUD: RBA’s hawkish hold keeps Aussie on the front foot

AUDUSD is trading around 0.664 to 0.665, near a multi month high, after the RBA kept the cash rate at 3.60 percent yesterday but stressed that inflation risks remain tilted upward and future decisions are between a long hold or a hike, not cuts. Headline inflation is about 3.8 percent and trimmed mean a little above 3 percent, both above the 2 to 3 percent target band, while domestic demand has been stronger than previously projected, which explains why officials openly discussed the possibility of higher rates in 2026.

China remains a swing factor, but the latest inflation data there, while soft, were broadly in line with expectations and did not trigger a major risk shock. With the Fed cutting and the RBA signalling a higher for longer bias, risks for the Australian dollar remain skewed toward continued resilience or modest further appreciation, especially against low yielders, as long as global risk sentiment stays stable.

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🔺 NZD: End of easing message still supports the kiwi

NZDUSD is trading just under 0.58, close to a one month peak, after the RBNZ cut the Official Cash Rate to 2.25 percent in late November but clearly signalled that this likely marks the end of its easing cycle. The bank expects inflation, currently about 3 percent, to fall back toward 2 percent by mid 2026 and its published track keeps the OCR broadly flat before gently rising again later in the decade, which markets have interpreted as a classic hawkish cut.

That leaves New Zealand offering a relatively attractive yield profile compared with peers where further or deeper cuts are expected, even though the domestic economy still shows spare capacity and a fragile housing backdrop. In the near term, the kiwi remains a textbook high beta play on global risk appetite and the Fed, but starting from a firmer policy base than earlier in the year, so risks lean toward further New Zealand dollar firmness if the Fed leans dovish and global sentiment holds.

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Cross-asset wrap

- 🪙 Gold:
Spot gold is trading around 4,200 to 4,210 dollars an ounce, fractionally lower on the day, as traders wait for clarity from the Fed on how fast real rates will fall in 2026. High cut odds, a weaker dollar and still elevated geopolitical uncertainty keep the underlying backdrop supportive, although a hawkish cut that lifts the dollar and nudges yields higher could trigger bouts of consolidation.

- 🛢 Oil:
Brent futures are trading just under 62 dollars after slipping in recent sessions, with prices caught between modest support from Russia and Ukraine related headlines and expectations of ample supply that has led to lower medium term price assumptions. These levels help the global disinflation narrative and give only a modest tailwind to producers such as Canada and Norway.

- 📈 Stocks:
The S&P 500 is near 6,870 after a minor pullback, still close to record territory for the year, while the VIX sits around 17 and has ticked higher into today’s Fed decision. This pattern fits a market that is constructive but tactically cautious, with options positioning suggesting more sensitivity to any downside surprise in the coming sessions.

- ₿ Crypto:
Bitcoin is trading a little above 92,000 dollars after several days of choppy but broadly upward sloping price action, with short term flows closely tracking shifts in Fed expectations and broader risk appetite rather than idiosyncratic crypto news. As usual, easier policy and a softer dollar tend to support crypto as a high beta slice of the risk complex, while any hawkish surprise or spike in real yields would likely hit the space disproportionately.

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