Overall Market Sentiment
Year-end mood is cautiously positive with a hint of nerves. The US Dollar Index trades around 98.3, near the lower end of its 52-week range and roughly 9.5% weaker than a year ago, after a year of Fed cuts and broad global easing.
The S&P 500 sits just above 6,900, close to record highs, while the MSCI ACWI is only fractionally below its own peak and up about 22% year to date. Equity volatility is low, with the VIX closing around 14, a level that fits a soft-landing narrative rather than a shock scenario.
Gold is holding near 4,330 to 4,350 dollars an ounce after an extraordinary year of gains, Brent crude ends 2025 around 61 dollars, and Bitcoin trades close to 88,000. Together, that mix fits a world of lower real yields, a softer but still important dollar, and lingering macro uncertainty.
Geopolitics
Energy markets remain the cleanest transmission channel from geopolitics into macro. Brent has finished the year near 61.4 dollars, down about 18% for 2025 despite a backdrop of wars, sanctions, and periodic shipping disruptions, as rising supply and softer demand outweighed the headline risk.
Recent rhetoric from Iran about a potential “full-fledged war,” and reports of Belarus missile activity near NATO airspace, have nudged risk premia modestly higher into year-end. Still, it has not been enough to break crude out of its broad 55 to 65 dollar trading corridor. Markets are effectively treating Brent around 60 dollars as a pivot. A decisive move higher would quickly reopen the inflation story, while a drop back toward the low 50s would reinforce the disinflation theme that dominated 2025.
These tensions keep a subtle bid under classic havens such as gold, CHF, and JPY on dips, even as the dominant market narrative remains one of soft landing, gradual easing, and abundant global liquidity.
Currency outlooks
🔻 USD: Softer trend intact despite less dovish Fed minutes
The dollar index is hovering around 98.3 after the latest Federal Reserve minutes, which confirmed a 9 to 3 vote for the December cut to 3.50 to 3.75 percent and revealed unusually deep divisions about how much more easing might be appropriate in 2026.
Inflation is drifting lower, with November CPI estimated around 2.7% year on year and core a touch above that, but still above the 2% target. Meanwhile, the labour market is cooling rather than collapsing. The minutes suggest a majority open to one further cut if disinflation continues, a minority comfortable holding where rates are, and a smaller group arguing for more aggressive easing. The forward path is distinctly data-dependent.
With 2-year yields around the mid-3s and the 10-year near 4.1%, rate differentials remain supportive in absolute terms, yet the loss of the “higher for much longer” narrative has eroded the structural dollar premium.
Into the thin first week of 2026, risks still look tilted toward gentle USD softness as long as incoming data do not produce a clear upside inflation or growth surprise. Any early January wobble in equities or geopolitical escalation could still trigger a sharp but likely temporary safe-haven bounce from these depressed dollar levels.
🔺 EUR: Patient ECB and soft dollar keep euro supported
EURUSD starts the final day of the year around 1.173, in the upper half of its recent 1.17 to 1.18 band after a strong year in which the euro gained well over 10% versus the dollar.
The ECB left the main refi rate at 2.15% and the deposit rate at 2.0% on 18 December, with staff projections showing headline inflation averaging 2.1% in 2025 and then slipping only gently below target in 2026 and 2027. Growth has been revised slightly higher and remains driven by domestic demand, while unemployment is at multi-decade lows. That mix supports a long pause rather than additional cuts.
Compared with a Fed that has already delivered three cuts and remains internally divided, the ECB looks more stable and slightly less dovish, which nudges rate differentials in the euro’s favour on a relative basis even if yields are still lower in absolute terms.
For the first week of the new year, risks lean toward modest EUR resilience versus USD, especially if euro area flash inflation on 7 January confirms a slow glide toward 2% rather than a renewed slump. Markets broadly see 1.17 as first support and the 1.18 to 1.19 area as initial resistance, which likely requires either softer US data or slightly firmer eurozone prices to break convincingly.
🔻 GBP: BoE cut leaves sterling with a softer policy anchor
GBPUSD trades near 1.345, close to the top of its three-month range after an 8% gain in 2025, but the domestic policy backdrop is now a modest headwind.
The Bank of England cut Bank Rate from 4.0% to 3.75% at its December meeting, citing faster-than-expected progress on inflation and a weaker labour market, while still describing policy as restrictive.
Headline CPI has fallen into the low 3s and core measures are easing, yet growth is flat, business investment is subdued, and unemployment is drifting higher. That combination typically caps how much rate support investors are willing to price into a currency. Markets look for one or two additional small cuts through 2026, a gentler path than in mid-2025 but still softer than the likely ECB trajectory.
Near term, risks for GBP appear mildly skewed to the downside on crosses, particularly against EUR and some higher-yielding FX, unless US data deliver another leg lower in the dollar that lifts most majors together. The 1.33 to 1.37 zone remains the broad reference range against USD.
⚖️ CAD: Steady BoC and oil equilibrium keep loonie range-bound
USDCAD is consolidating around 1.37 in very tight ranges as year-end liquidity dries up, reflecting a balance between a softer dollar, a Bank of Canada on hold, and oil that is neither cheap enough to hurt nor expensive enough to boost CAD in a major way.
The BoC kept its policy rate at 2.25% on 10 December and described the economy as “resilient overall” despite trade headwinds, signalling that October’s cut likely marked the end of the easing cycle for now. Headline inflation is running near 2.2% with preferred core measures below 3%, well inside the 1 to 3% target range, which gives policymakers room to wait and see.
Brent around 61 dollars leaves Canada’s terms of trade roughly neutral versus earlier in the year, and forward curves continue to point to an oversupplied oil market in 2026. That limits expectations of a strong energy-driven tailwind for CAD.
Into early 2026, the near-term risk bias for CAD looks broadly neutral. USDCAD is likely to stay inside the familiar 1.36 to 1.38 corridor unless either oil breaks convincingly away from 60 dollars or US data materially shift the dollar story.
🔻 CHF: Strong franc, zero rates and fading haven demand
USDCHF sits near 0.7925 today, at the strong end of its yearly range for the franc and only slightly above multi-decade lows in the pair, while EURCHF holds close to the low 0.93s.
The Swiss National Bank left its policy rate at 0% at the 11 December meeting and has signalled a strong preference to avoid a return to negative rates. Inflation is projected around 0.2% to 0.4% over the next two years, firmly at the bottom of its 0 to 2% range. That combination implies low tolerance for additional sustained franc appreciation that would risk pushing inflation into outright negative territory.
With global risk sentiment calm and gold acting as the preferred hedge, fresh safe-haven inflows into CHF look limited for now. For the week ahead, risks appear tilted toward mild CHF softness, particularly versus EUR and possibly USD, as long as there is no sudden shock that revives intense defensive flows.
🔺 JPY: BoJ hike, higher yields and intervention risk support yen
USDJPY is trading close to 156, not far from recent highs, even though the Bank of Japan has delivered a historic hike to 0.75% and Japanese yields have recorded their steepest annual rise since 1994.
The 10-year JGB yield is around 2.07%, about a full percentage point higher than a year ago, as the BoJ reduces bond purchases and signals that further gradual hikes are possible if inflation and wages behave as expected. That said, US yields remain higher and global risk appetite is strong, so carry trades built over several years are still attractive. This helps explain why yen strength has been sporadic rather than persistent.
Tokyo officials have become more vocal as year-end approaches, warning they will respond to “excessive” currency moves. That effectively marks the upper 150s on USDJPY as an intervention-risk zone.
Looking into early January, risks lean toward episodic yen strength, particularly if US data disappoint or if geopolitical tensions escalate and trigger risk aversion. Many participants view roughly 155 as the first meaningful support in USDJPY and 152 as a deeper support area that could come into play in a more pronounced risk-off phase.
🔺 AUD: Hawkish RBA and metals theme keep upside bias
AUDUSD is hovering around 0.669, just off recent highs, as a soft dollar, strong metals, and a relatively hawkish RBA combine to support the currency.
The RBA held the cash rate at 3.60% on 9 December and has been explicit that it would be wrong to assume it has no appetite for further rate increases in 2026 if inflation, currently near 3.8%, does not cool as expected. That sets Australia apart from several peers that are already deep into easing cycles and keeps front-end Australian yields relatively attractive.
China’s data have stopped deteriorating sharply and some leading indicators are tentatively improving, which can give an extra cyclical boost to an exporter like Australia when global risk appetite is healthy.
For the week ahead, risks look modestly skewed toward further AUD strength if the dollar stays on the back foot and commodity prices remain firm, with 0.66 seen as first support and 0.68 as initial resistance.
🔺 NZD: “Hawkish cut” and firm yields support kiwi on dips
NZDUSD is trading just under 0.58 after slipping from highs earlier in the quarter, yet the broader backdrop remains supportive compared with much of G10.
The RBNZ cut the OCR to 2.25% in November, but inflation is still at 3.0%, the top of the 1 to 3% target band. Projections show inflation drifting toward 2% by mid-2026 with only limited scope for further cuts. That “hawkish cut” profile leaves New Zealand’s real yields attractive versus ultra-low-rate economies and provides a policy floor under NZD even though domestic growth is still below potential.
The kiwi remains sensitive to swings in global risk appetite and China, but in an environment of steady world growth and lower real yields, it tends to outperform other high-beta currencies with weaker policy anchors.
Into early 2026, risks are mildly skewed toward NZD resilience, especially against currencies whose central banks are expected to keep cutting. Markets broadly watch 0.575 as near-term support and 0.59 to 0.60 as the first significant resistance band.
Cross-asset wrap
- 🪙 Gold: Gold finishes the year around 4,335 dollars per ounce, up more than 60% year on year after briefly trading above 4,400 earlier in December. Lower real yields, persistent geopolitical risk, and ongoing official-sector demand have kept gold behaving more like a structural macro hedge than a pure crisis trade.
- 🛢 Oil: Brent near 61.4 dollars and WTI near 58 dollars keep energy as a mild drag on inflation and a modest headwind for petro currencies, while leaving markets very sensitive to any sign that geopolitical risks are starting to affect physical flows more directly.
- 📈 Stocks: The S&P 500 sits just below 6,910, capping a gain of more than 20% for 2025, while the MSCI ACWI is also near record highs. With volatility low, the combination of high valuations and calm positioning means early 2026 surprises from the Fed or geopolitics could generate outsized moves relative to the current day-to-day stability.
- ₿ Crypto: Bitcoin ends the year around 88,300, with crypto still trading primarily as a high-beta expression of liquidity and risk appetite. Near term, shifts in yields, volatility, and the Fed narrative are likely to matter more than idiosyncratic token headlines.
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This is general, educational macro and FX commentary. It is not investment advice and not a trading signal.
Wishing you all a happy, healthy and profitable 2026!
We'll be back with a new blog post on Monday, the 5th of January.