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🧠Soft dollar, Fed minutes and metals shape FX week

Published: 12/29/2025

🧠Soft dollar, Fed minutes and metals shape FX week



Overall Market Sentiment



Global risk appetite is constructive but slightly cautious. Equities are holding near record highs while traders look to upcoming Fed communication, including the latest meeting minutes, for clarity on how far and how fast cuts could go in 2026. The dollar index is sitting around 98, near recent lows, and volatility is subdued with the VIX in the low teens. The backdrop still looks benign, but it can be jolted by surprises from the Fed or geopolitics.



Geopolitics



Ukraine peace efforts appear to be progressing, but key political and territorial issues remain unresolved, so markets are pricing reduced tail risk rather than a clean end-state. In Asia, China’s latest military activity around Taiwan keeps the geopolitical risk premium alive even when local markets look calm.


Oil is modestly firmer, with Brent in the low 60s and WTI in the high 50s, supported by geopolitical tensions and recurring attacks on energy infrastructure even as oversupply concerns keep the bigger picture capped. These tensions help underpin gold and safe-haven FX on dips, even though the dominant macro theme remains lower real yields and a softer dollar.


A key macro level many desks watch is Brent around the 60 dollar area. Sustained moves away from that region can start to signal either a more serious supply shock or, on the other side, deeper global demand concerns.





Currency outlooks




🔻 USD: Soft data and cut expectations keep the dollar on the defensive



The dollar index is trading around 98 and remains under pressure as markets continue to price additional easing in 2026. The Fed has already moved rates lower, while the market is still leaning more dovish than the Fed’s guidance, keeping front-end yields biased lower.


The curve is now positively sloped, with 2-year yields in the mid 3s and 10-year yields in the low 4s, consistent with a soft-landing narrative rather than imminent recession. This week’s key catalyst is the release of the latest FOMC minutes, which could either validate market pricing for further cuts or push back against it if the debate around inflation persistence and fiscal risks looks more heated than investors expect.


Near term, risks still lean toward a softer dollar if the minutes read balanced to dovish and incoming data do not re-ignite inflation concerns. However, with geopolitics still live, sharp safe-haven squeezes are possible. Many desks flag the 97 area as a first meaningful support zone for DXY, while 99 to 100 remains the near-term resistance band.



🔺 EUR: Supported by a patient ECB and a softer USD backdrop



EURUSD is trading around 1.18, near recent highs, supported by broad dollar softness and an ECB that is signalling a long pause rather than near-term cuts. Inflation is close to target, while growth is weak but not collapsing, which supports the idea of policy staying steady for longer.


Rate differentials still favour the dollar in absolute terms, but the gap has narrowed compared with earlier in the cycle, and that removal of an extreme disadvantage has been an important tailwind for EUR. Near term, markets are focused on upcoming euro area inflation data, since any upside surprise in core inflation would reinforce the case for ECB patience.


For this week, EURUSD risks look tilted upward as long as the pair holds above the 1.17 to 1.1720 support region, with 1.18 being tested and 1.19 to 1.20 seen as the next broad resistance zone if the soft-dollar trend extends. The main counter-argument is positioning, since a hawkish surprise in the Fed minutes could trigger a temporary pullback.



⚖️ GBP: Firmer versus USD, more mixed versus EUR



Sterling is hovering around 1.35 versus the dollar, near recent highs, as markets weigh a relatively dovish Bank of England against the broader theme of US dollar softness. UK inflation is still above target, but prices and wage growth have cooled enough that the BoE has started easing and left the door open to more cuts in 2026 if disinflation persists.


Because the BoE is seen as more willing to cut again than the ECB, GBP tends to look firmer versus USD but more mixed on crosses, leaving the overall risk balance fairly neutral. Markets are watching 1.34 as near-term support and 1.36 as the top of the recent range.



⚖️ CAD: Oil helps at the margin, but the macro mix keeps it range-bound



USDCAD is around 1.37, as a modest recovery in oil prices offsets concerns about Canada’s softer growth profile and a central bank that is firmly on hold. Inflation is close to target and core measures have eased, giving the Bank of Canada little reason to tighten from its current stance.


With oil still well below its earlier highs and trade uncertainty in the background, CAD is not behaving like a pure high-beta commodity currency. Many participants see USDCAD 1.36 as a pivot, with 1.35 and 1.38 acting as broader range boundaries unless either oil or the Fed narrative breaks decisively.



⚖️ CHF: Geopolitics supports havens, SNB policy limits CHF upside



USDCHF is around 0.79 and CHF is broadly stable. Geopolitical uncertainty supports safe-haven demand, but the Swiss policy backdrop remains very dovish with inflation back near zero. That combination reduces the SNB’s tolerance for a significantly stronger franc that would import more disinflation.


At the same time, live geopolitical risks prevent CHF from weakening aggressively. Many desks treat 0.78 to 0.80 in USDCHF as a broad equilibrium zone rather than a clear breakout range.



🔺 JPY: Post-hike regime shift, but carry still matters



USDJPY is trading near the mid 150s after the BoJ’s recent hike, with markets weighing a genuinely shifting Japanese policy regime against a still meaningful yield gap versus the US. Every additional sign of BoJ hawkishness, or stronger intervention warnings, tends to cap rallies as USDJPY approaches the upper end of the recent range.


Over the medium term, the dollar-yen carry advantage should erode gradually if the Fed continues to ease and Japanese policy normalises. Traders remain alert to an intervention-risk zone in the upper 150s, with support watched around 155 and then the low 150s on larger risk-off moves.



🔺 AUD: Supported by relative policy, still trades like high beta



AUDUSD is trading around 0.67, supported by a soft dollar, strong metals, and an RBA that remains more hawkish than many peers given inflation still above target. Even so, AUD continues to behave like a classic high-beta currency, leaning heavily on global risk sentiment and China-related swings.


Risks skew to further AUD strength if the Fed minutes do not significantly reprice the 2026 path and if improving demand signals support commodities. Many desks see 0.66 as first strong support and 0.68 to 0.69 as the next resistance band.



🔺 NZD: Yield support remains, but global drivers dominate



NZDUSD is near 0.58 as markets balance New Zealand’s relatively attractive real yield profile against the fact that the RBNZ has already delivered a “hawkish cut” and is watching incoming inflation evidence closely.


Near term, NZD remains sensitive to global risk appetite and China. Levels to watch are 0.575 as first support and 0.59 to 0.60 as resistance. A sustained break above that zone would likely require either a further leg lower in the dollar or a meaningfully firmer domestic inflation impulse.





Cross-asset wrap



  • 🪙 Gold: Gold remains near record territory after a strong run, with pullbacks looking more like profit-taking than a fundamental shift while real yields stay low and geopolitics remains noisy.
  • 🛢 Oil: Brent in the low 60s reflects a balance between oversupply concerns and persistent geopolitical risk across multiple regions.
  • 📈 Stocks: Equities are near record highs with low volatility, but that combination can amplify pullbacks if the Fed minutes surprise hawkishly or geopolitics escalates.
  • ₿ Crypto: Bitcoin remains highly sensitive to real yields and broader risk sentiment. Any meaningful repricing of the Fed path could matter more than token-specific headlines in the near term.



Disclaimer: This is general, educational market commentary on FX and macro assets. It is not investment advice and not a trading signal.