🧠Hawkish BoJ and Fed-cut bets unsettle dollar and risk

Published: 12/1/2025

Overall Market Sentiment:
Markets are starting December in a cautious, mild risk-off mood. Global equities are edging lower, volatility has picked up with the VIX back in the high teens, the dollar index has slipped toward 99, gold is trading near recent record highs around 4,250 dollars an ounce and crypto is under heavy pressure as Bitcoin trades in the mid 80,000s.

The big macro swing factors today are, first, growing market conviction that the Fed will deliver another quarter-point cut in December, with futures implying roughly a mid-80 percent probability on top of October’s cut that took the target range to 3.75 to 4.00 percent. Second, a sharp repricing of Bank of Japan expectations after Governor Ueda explicitly flagged that a rate hike will be considered at the December 18 to 19 meeting, which has lifted the yen and Japanese yields.

US data are still distorted by the recent government shutdown, which forced the cancellation or delay of several key releases, including the October CPI and October employment report. November jobs and inflation data will not be available until mid December and will come out after the Fed’s December 9 to 10 meeting, so markets are leaning more than usual on survey indicators such as ISM and on central bank communication for guidance this week.

🔻 USD: Risks lean toward further softness as Fed cut priced in

The broad US dollar index is hovering around 99.2 to 99.3, having drifted lower from the 100 area as markets increasingly price another 25 basis point Fed cut at the December meeting, following October’s move that lowered the target range to 3.75 to 4.00 percent. Fed funds futures currently imply a probability in the mid-80 percent range for that cut, helped by softer activity indicators and only a modest pickup in volatility despite today’s wobble.

At the same time, the data landscape is messy after the shutdown: there was no October CPI or employment report and the November payrolls and CPI figures will not arrive until mid December, after the Fed meeting. That pushes extra focus onto survey data such as today’s ISM manufacturing reading and later this week’s ISM services, which consensus expects to hover around the 50 line that separates expansion from contraction.

Near term, the balance of risk still leans toward a softer dollar if ISM and other high-frequency indicators come in on the weak side and Fed commentary does not push back against current cut pricing. The main counter-argument is that any sharper equity or credit sell-off, especially if tied to the crypto pullback, could still trigger a classic safe-haven bid into the dollar, particularly against higher-risk currencies such as AUD and NZD. Markets are watching the 99 handle on the dollar index as near-term support and the 100 area as resistance into the December 9 to 10 Fed meeting.

🔺 EUR: Supported by soft USD and steady ECB on hold

EURUSD is trading around 1.16, just above recent closes, as broad dollar softness and a relatively stable Eurozone backdrop leave risks tilted moderately in favour of the single currency. The ECB deposit rate sits at 2.00 percent after this year’s cuts and officials have signalled that current settings are likely in a good place for an extended period while inflation hovers close to 2 percent.

October HICP was about 2.1 percent year on year with core near 2.4 percent, and Q3 GDP grew roughly 0.2 percent, consistent with slow but positive expansion rather than recession. On Tuesday, the flash November inflation estimate is due and national prints, including a slightly higher German reading, suggest headline euro area inflation may have ticked a touch higher, which would reinforce the case for the ECB to stay on hold well into 2026.

With US 10 year yields close to 4 percent and euro rates no longer far below, relative rate differentials are less supportive of the dollar than earlier in the year. Into the week ahead, markets see downside support for EURUSD in the 1.15 region and resistance around 1.17 to 1.18, with Eurozone inflation data the main local driver and US ISM plus Fed rhetoric the global swing factors.

⚖️ GBP: Softer USD versus UK growth and fiscal headwinds

Sterling is trading near 1.32 to 1.33 against the dollar and around 0.88 in EURGBP, benefiting from dollar softness and some relief that the recent UK Budget did not deliver more radical surprises, but the domestic picture remains constrained. Bank Rate is parked at 4.0 percent after a narrow November vote to hold and markets are split on whether the first cut arrives as early as December or more likely in the first half of 2026 as inflation trends lower.

Fresh data show mortgage approvals at about 65 thousand in October, slightly ahead of expectations but still the weakest since May, which fits with a story of subdued housing demand under higher taxes and soft real incomes. Forward looking projections point to UK growth slowing toward 1 percent in 2026 with unemployment drifting above 5 percent, which tends to limit how much markets are willing to reward sterling on rallies, especially against the euro.

Into the week ahead, the UK calendar is relatively light beyond final PMIs and housing data, so sterling is likely to take its cues from global risk appetite, US data and any BoE commentary that either validates or pushes back against early-cut expectations. Reference areas markets are watching include 1.30 as a broad support zone in GBPUSD and 0.87 to 0.89 in EURGBP.

⚖️ CAD: Easier BoC offsets any help from oil

USDCAD is trading around 1.39 to 1.40, near the weaker side of this year’s range for the Canadian dollar, as the Bank of Canada’s relatively aggressive easing contrasts with expectations of at least one more Fed cut. The BoC has cut its policy rate twice in a row, taking it from 2.75 percent to 2.25 percent as it responds to a cooling economy and inflation that is trending back toward its 2 percent target.

Recent data show Canada rebounding in Q3 after a contraction in Q2, but the recovery is modest, which encourages markets to keep some probability on further BoC easing in 2026. Oil is not providing a particularly strong tailwind: Brent is sitting in the low 60s per barrel around 63 to 64, well below this year’s highs and constrained by concerns over slower global growth.

For the week ahead, the main CAD drivers are global risk tone and US ISM prints rather than domestic releases. Markets generally see the recent 1.39 to 1.41 band in USDCAD as the key area to monitor while both the BoC and Fed remain data-dependent.

⚖️ CHF: Strong franc and ultra-low inflation in tension

The Swiss franc remains one of the strongest major currencies in 2025, with USDCHF trading near 0.80 and EURCHF around 0.93, reflecting persistent safe-haven demand and Switzerland’s very low inflation. Headline CPI is running at about 0.1 percent year on year, close to the bottom of the Swiss National Bank’s 0 to 2 percent target band, and the policy rate is effectively at 0 percent after a series of cuts in recent quarters.

The SNB has signalled it is broadly comfortable with the current stance but remains willing to act in FX markets if franc strength becomes excessive, especially given modest growth and tariff headwinds for exporters. In the very near term, today’s risk-off tone and crypto-driven volatility argue for continued demand for CHF as a hedge, yet the starting point is already one of significant appreciation, which tempers the scope for further sharp gains.

Markets are treating the 0.79 to 0.81 zone in USDCHF and 0.92 to 0.94 in EURCHF as broad reference areas while watching Wednesday’s Swiss CPI update for any signs that inflation is drifting decisively away from the SNB’s comfort zone.

🔺 JPY: Bullish tilt as December BoJ hike odds jump

The yen is the clearest story of the day. USDJPY has fallen toward the mid 155 area after Governor Ueda said the Bank of Japan will actively weigh the pros and cons of a rate hike at the December 18 to 19 meeting, which has pushed market implied hike odds to around 80 percent. The policy rate currently sits near 0.5 percent following the exit from negative rates earlier this year and another step higher would further narrow the gap with US yields at a time when the Fed is expected to cut again.

That combination, a smaller US Japan rate gap and a more hawkish BoJ, tends to favour a stronger yen and makes carry trades funded in JPY, that is borrowing in low yielding yen to buy higher yielding assets, more vulnerable during bouts of risk aversion. The main near-term uncertainty is whether upcoming Japanese wage and inflation data can justify a hike; if they disappoint, markets could quickly scale back expectations and allow USDJPY to rebound.

For the week ahead, many participants are watching the 155 area as an important reference on the downside and the 157 to 158 region as resistance, while monitoring both US ISM readings and any further BoJ commentary for confirmation that December really is a live meeting.

⚖️ AUD: Strong data meet softer risk tone

AUDUSD is trading in the mid 0.65s, close to its recent highs, supported by an upside surprise in October CPI, where headline inflation printed around 3.8 percent year on year and core measures also beat expectations. The RBA kept the cash rate at 3.60 percent at its early November meeting and has since stressed that it is not committing to a rapid easing path, which has led markets to price a non-trivial chance of renewed tightening in 2026 if inflation stays sticky.

This week’s focal point is Q3 GDP, where consensus looks for about 0.7 percent quarter on quarter growth, alongside fresh business and wage indicators that will help investors judge how restrictive current policy really is. Solid domestic fundamentals support AUD, but today’s wobble in global risk appetite and the crypto driven spike in volatility limit how far markets are willing to push high-beta currencies, leaving near-term risks broadly balanced with 0.64 seen as key support and 0.66 to 0.67 as resistance.

🔺 NZD: “Hawkish cut” keeps kiwi supported despite risk jitters

The New Zealand dollar is consolidating recent gains, with NZDUSD trading around 0.57 to 0.574 near the top of its recent range, after the RBNZ cut the OCR to 2.25 percent last week but strongly hinted that the easing cycle is now essentially complete. The central bank’s statement emphasised that policy is already very accommodative and that further reductions would only be considered if the outlook deteriorates, with projections showing the cash rate broadly flat through 2026 as inflation gradually returns to target.

That stance, combined with relatively high export prices, leaves New Zealand still offering a reasonable yield pick up versus economies where cut cycles are more advanced, which helps explain why NZD has been able to outperform some peers in recent sessions despite choppy risk sentiment. The main near-term risk is global rather than local: in the absence of major domestic data this week, the kiwi is likely to trade as a higher-beta expression of broader appetite for risk, with markets watching 0.56 as a rough support zone and the 0.58 area as near-term resistance.

Optional cross-asset wrap

🪙 Gold:
Gold is trading near 4,240 to 4,260 dollars per ounce, around a six-week high and not far from its all-time peak, helped by a weaker dollar, firm Fed-cut expectations and renewed demand for hedges as crypto and some equities come under pressure. In general, lower real yields and elevated macro uncertainty tend to underpin gold, so the metal can remain well supported if US data keep the Fed on an easing path and volatility in other risk assets stays elevated.

🛢 Oil:
Brent crude is holding in the low 60s, roughly 63 to 64 dollars per barrel, after a choppy few sessions in which rally attempts have been capped by worries about 2026 oversupply and uneven global demand. For FX, that level is high enough to prevent renewed stress in energy-sensitive currencies such as CAD and NOK, but not strong enough to deliver a robust positive shock to their terms of trade.

📈 Stocks:
Global equities are slightly softer to start December, with broad world indices marginally in the red and US futures pointing to a weaker open after a strong Thanksgiving week. The pullback looks more like a pause near record or near-cycle highs than a full de-risking, but with volatility off its lows, markets appear more sensitive to any upside surprises in US data that could challenge the current Fed-cut narrative.

₿ Crypto:
Crypto is at the heart of today’s risk story: Bitcoin has slid into the mid 80,000s after a sharp run-up, with leveraged positions being flushed out and ETF flows turning more cautious. Broadly, crypto is trading less like an inflation hedge and more like a high-beta risk asset that struggles when real yields are high, volatility spikes and investors cut exposure to risk, which in turn feeds back into FX through reduced appetite for carry and emerging market exposures.



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.