🧠Soft dollar, central bank trifecta and oil geopolitics
Published: 12/15/2025
Overall Market Sentiment
Markets start the week in a cautiously positive mood. The dollar index sits around 98.3, near the lower end of its recent range, while global equities hover just below record highs and the VIX is in the mid-teens after the Fed’s latest 25 bp cut to 3.50–3.75 percent. Investors are now focused on a very heavy week of data and central bank meetings, with delayed US jobs and inflation figures, Canada CPI, and key rate decisions from the ECB, BoE and BoJ poised to drive volatility into year end.
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Geopolitics
Oil is being pulled in two directions. Brent trades near 61 dollars a barrel as fears of supply disruption from escalating US–Venezuela tensions offset expectations of a sizeable global surplus in 2026. Washington’s seizure of a Venezuelan tanker and threat to intercept more cargoes has already hit exports, which keeps a geopolitical risk premium alive even as fundamental forecasts point to oversupply.
At the same time, diplomatic contacts in Europe, including talks hosted in Berlin, are raising the possibility of more Russian barrels returning over time, which would reinforce the medium-term surplus narrative and act as a cap on prices. Markets are watching whether Brent can hold the 60 dollar region, since a sustained move lower would support the global disinflation story and reduce pressure on energy-sensitive currencies, while a renewed spike would feed back into inflation expectations and policy paths.
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Currency outlooks
🔻 USD: Fed cut keeps dollar on the back foot
The dollar index is trading around 98.3 today, drifting lower after the Fed’s third 25 bp cut brought the funds rate to 3.50–3.75 percent and officials signalled a likely pause with only one further cut pencilled in for 2026. The cuts have helped steepen the Treasury curve, with long yields up from September lows even as the front end has fallen, which typically weakens the dollar’s carry advantage without delivering a classic panic-style safe haven bid.
A data-heavy week now looms. Delayed US jobs, CPI and retail sales will give the first clean look at the post-shutdown economy, but the Fed has already framed future decisions as data-dependent around inflation drifting toward 3 percent year on year. If figures are soft or noisy, markets are likely to lean toward more easing in 2026 than the Fed’s projections, which would keep the dollar on the defensive.
Near term, risks look tilted toward further mild USD weakness, especially against currencies backed by either a steady or tightening central bank stance. Upside dollar risk would mainly come from a surprise upside inflation or jobs print that forces markets to scale back 2026 cut expectations, or from a sharp risk-off shock that revives safe haven demand.
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🔺 EUR: Supported by stable ECB and soft dollar
EURUSD is trading around 1.17–1.18, near the top of its 12-month range, helped by the softer dollar and by a Eurozone backdrop where inflation is very close to target and the ECB is widely expected to keep the deposit rate at 2.0 percent on Wednesday. Headline HICP is roughly 2.2 percent year on year, core around 2.4 percent, which looks like price stability rather than a problem that needs fresh cuts.
The ECB is likely to emphasise that policy has already turned supportive while the economy grows slowly but keeps adding jobs, so markets do not price meaningful easing until late 2026. In relative terms, that contrasts with a Fed that is already cutting and a BoE that may ease again this week, which gently favours the euro in G10 rate-differential terms.
For the week ahead, risks lean toward modest further EUR strength versus USD as long as US data do not deliver a major hawkish surprise. Many participants are watching the 1.16–1.17 area as reference support and the 1.18 region as initial resistance on spot EURUSD.
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🔻 GBP: Into a finely balanced BoE cut decision
GBPUSD trades around 1.335–1.337 today, slightly softer after last week’s gains, with markets assigning about a 90 percent probability that the BoE cuts Bank Rate from 4.0 to 3.75 percent on Thursday. UK inflation is still about 3.6 percent, clearly above target but trending lower, while growth has stalled and unemployment is edging up, which is exactly the mix that tends to pull the BoE toward cautious easing.
The committee is split, with some members worrying more about persistent services inflation and others about labour market damage, so the message will matter at least as much as the decision. If the Bank delivers a cut while stressing that it is nearing the end of the cycle, sterling could remain relatively resilient, but a more open-ended easing signal would usually weigh on the currency, particularly against the euro and high yielders.
Overall, the near-term risk tilt for GBP is mildly bearish, especially on crosses, even if GBPUSD itself continues to take most of its direction from the dollar side as US data land through the week.
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⚖️ CAD: BoC pause meets CPI test and soft oil
USDCAD is around 1.37–1.38, close to a three-month low in the pair, reflecting a softer dollar and a Bank of Canada that has clearly signalled the end of its easing cycle after holding the overnight rate at 2.25 percent last week. Today’s November CPI, where consensus looks for inflation to hold near 2.2 percent year on year, is a key test of that story. A stable print would reinforce the idea of an extended pause through most of 2026.
Oil around 61 dollars is not giving CAD a big additional boost, since the market narrative is increasingly about a 2026 surplus rather than immediate tightness, but the Canadian economy has surprised modestly on the upside in recent months, which keeps domestic yields supported relative to peers that are still cutting.
All told, the short-term risk bias for CAD is broadly neutral. Stable inflation and a BoC on hold justify a firm currency against low yielders, but soft oil and global growth worries argue against assuming a strong outperformance trend, particularly if US data re-energise the dollar late in the week.
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🔻 CHF: Strong franc, zero rates and mild mean reversion risk
USDCHF trades just under 0.80, while EURCHF sits around the low 0.93s, leaving the franc very strong in both nominal and real terms even after the SNB kept its policy rate at 0 percent last week. The central bank cut its inflation forecasts to roughly 0.2 percent for 2025 and around 0.5–0.7 percent for 2026–27, which is at the bottom of its definition of price stability and reinforces the idea that rates are likely to stay at zero for a long time.
Officials again highlighted their willingness to intervene in FX if needed, but in practice they have been reluctant to do much, which markets read as tolerance for a gradually weaker franc from these elevated levels rather than a push for further appreciation. With risk sentiment still generally constructive and gold acting as a popular hedge, safe haven inflows into CHF are limited.
Into the week, risks look tilted toward mild CHF softness on the crosses, especially if ECB and BoE meetings pass without negative surprises that would shake broader risk appetite.
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🔺 JPY: Tankan and BoJ expectations keep yen supported
USDJPY trades close to 155, down from recent highs, as the latest BoJ tankan survey showed large manufacturers’ sentiment at a four-year high and reinforced expectations that the BoJ will raise its policy rate from 0.5 to 0.75 percent at the December 18–19 meeting. Ten-year JGB yields are near 1.96 percent, their highest in many years, which signals markets are starting to price a slow but persistent normalisation path, potentially toward 1.75 percent by 2027.
Against that, US yields remain higher in absolute terms, and the steepening of the Treasury curve keeps rate differentials still yen negative, which is why rallies in JPY tend to be uneven and sensitive to changes in risk sentiment. For now, the combination of an upcoming BoJ hike and a softer Fed keeps USDJPY biased lower on a multi-week view, even if intraday price action can flip with shifts in positioning.
For this week, risks remain tilted toward a somewhat stronger yen, especially if the BoJ confirms the hike and hints at further gradual tightening, or if any of the big US data releases disappoint and knock US yields back down. Market participants are paying close attention to the 153–156 band as a broad pivot zone.
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⚖️ AUD: Hawkish hold, but China drag keeps risks balanced
AUDUSD is trading around 0.665, slightly off last week’s highs near 0.67, as momentum fades after the RBA kept the cash rate at 3.60 percent and highlighted upside inflation risks while weaker Chinese data weighed on regional sentiment. The RBA has clearly framed its stance as hold, with hikes on the table in 2026, rather than hold then cut, which supports Australian yields relative to peers that are already easing.
However, renewed concern over China’s property sector, softer industrial production and retail sales, and a risk-off tone in parts of Asia limit enthusiasm for the more cyclical AUD. Overall, the near-term risk tilt for AUD is neutral. Policy is a mild positive, China and global equity volatility a mild negative, which leaves AUD mostly trading as a high-beta expression of whatever the dollar does around this week’s US data.
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🔺 NZD: Hawkish cut still resonates despite China headwind
NZDUSD is hovering around the high 0.57s to low 0.58s, having pulled back slightly on weaker Chinese data but still supported by last month’s hawkish cut, which lowered the OCR to 2.25 percent while signalling a likely end to the easing cycle. Inflation is about 3 percent, the top of the RBNZ’s 1–3 percent target band, and the bank’s projections show it drifting back toward 2 percent by mid-2026 with the policy rate broadly flat, a profile that keeps New Zealand’s real yield attractive in G10.
The kiwi remains sensitive to swings in global risk appetite and China news, but it has tended to outperform other high-beta currencies when the US dollar softens and investors hunt for yield in relatively well-anchored inflation regimes. For the week ahead, risks are still mildly skewed toward NZD resilience, provided US data do not trigger a broad dollar surge and China headlines do not deteriorate sharply. Many are watching the 0.575–0.58 zone as key support and the 0.585 area as initial resistance.
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Cross-asset wrap
🪙 Gold:
Gold trades around 4,340–4,350 dollars an ounce, near seven-week highs, supported by lower real-yield expectations, a softer dollar and steady safe haven interest ahead of this week’s US data. With central banks either cutting or holding at low levels, gold is behaving more like a structural macro hedge than a stress-only asset, and it typically stays underpinned as long as markets see gradual easing with inflation around 3 percent rather than collapsing.
🛢 Oil:
Brent sits just above 61 dollars, as Venezuelan supply concerns and US seizure of a tanker are offset by expectations of a sizeable surplus in 2026 and the possibility of more Russian barrels if Ukraine diplomacy makes progress. This creates a narrow, volatile range rather than a clear trend, which keeps energy-linked FX such as CAD and NOK more sensitive to data and relative rates than to pure oil price direction for now.
📈 Stocks:
The S&P 500 is a little below recent highs around 6,830, while the MSCI World and MSCI ACWI indices are close to records, even after last week’s tech-led wobble. Volatility has ticked up but remains moderate with the VIX in the mid-teens, consistent with a market that is digesting the Fed cut and bracing for this week’s data rather than one that is pricing an imminent macro shock.
₿ Crypto:
Bitcoin trades just under 90,000, having bounced modestly after a sharp post-FOMC slide but still below the peaks seen when Fed easing hopes first ramped up. Crypto continues to behave like a high-beta proxy on global liquidity and risk appetite. Easier policy, a weaker USD and calm equities help, while any surprise hawkish data or volatility spike tends to produce outsized downside swings.
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This is general, educational market commentary on FX and macro markets. It is not investment advice and not a trading signal.