🧠Soft US jobs, BoJ hike risk and oil geopolitics

Published: 12/4/2025

Overall Market Sentiment:
Risk tone is mildly positive today. Global equities are grinding higher, volatility is contained, and the dollar is softer as rate cut expectations firm ahead of next week’s Fed decision. The main tension is between weaker US data that supports easier policy and a more hawkish turn in Japan plus renewed geopolitical premium in oil.

Geopolitics

Ukrainian drone strikes on Russian refining assets and the Druzhba pipeline, combined with stalled peace talks, are keeping a modest risk premium in oil even though the broader market still looks oversupplied. Brent is trading around 63 dollars per barrel, up slightly on the day after jumping on news of fresh attacks. A major rating agency has trimmed its medium-term oil price assumptions because it expects global supply growth to outpace demand, which helps cap the upside in crude and limits how far energy driven inflation can re accelerate.

For FX, this mix usually means some support for oil exporters and a small bid for classic safe havens like JPY and CHF on headline risk, but not a full risk off move because realized gains in oil prices are still modest.

Currency outlooks

🔻 USD: Near term risks still lean weaker

The dollar index is sitting just below 99, close to the lower end of its recent range, after markets interpreted a surprise 32,000 drop in November private payrolls as confirmation that US growth is cooling. Fed funds futures now price roughly an 80 to 90 percent probability of a 25-basis point cut at next week’s 9 to 10 December FOMC meeting and about 75 to 100 basis points of easing over the next year, which keeps downward pressure on front end yields.

The data picture is messy because October CPI and employment reports were cancelled after the 43-day government shutdown, so investors are relying heavily on partial indicators like ADP, ISM surveys and jobless claims. The next key test is Friday’s delayed PCE inflation release, where consensus looks for core to rise about 0.2 to 0.3 percent month on month, keeping the year-on-year rate in the high twos.

If PCE and subsequent Fed communication reinforce the idea that policy is moving firmly into an easing phase while other central banks are still on hold or even thinking about hikes, the risk tilt remains toward further gradual USD softness, especially against currencies backed by stronger domestic data or a more hawkish policy path. The main counterargument is that if PCE or the later November CPI surprise higher, markets could quickly pare back cut expectations and give the dollar a reflex bounce from the 98.8 support region that many are watching.

🔺 EUR: Supported by softer USD and resilient data

The euro is trading near a seven week high around 1.16 against the dollar as the softer US data backdrop combines with steady euro area numbers. Flash HICP for November ticked up to about 2.2 percent year on year from 2.1 percent, while unemployment is holding around 6.4 percent, which suggests the region has avoided a hard landing for now.

The ECB meets on 17 to 18 December and is widely expected to keep policy unchanged, with officials signalling that inflation is close to target and risks are broadly balanced. Markets are not pricing meaningful rate cuts until well into 2026, so the relative rate story has quietly shifted in the euro’s favor as the Fed edges toward easing.

Participants are watching the 1.17 to 1.18 area in EURUSD, which lines up with recent highs and a cluster of moving averages, as a reference zone that could either cap the move near term or, if broken, encourage discussion of a push toward 1.20. The near-term risk tilt stays toward modest further euro firmness against the dollar as long as energy disruptions from Ukraine do not trigger a sharp growth scare in Europe.

⚖️ GBP: Domestic weakness versus BoE cut hopes

Sterling is holding above 1.33 against the dollar, helped by USD softness, but the domestic backdrop is clearly cooling. Headline UK CPI eased to 3.6 percent in October, and a fresh Bank of England survey shows firms planning to trim staff while still raising prices, with expected price growth around 3.7 percent over the next 12 months.

Other business surveys point to the fastest job cuts since 2021 and a deep construction downturn, which reinforces the idea that restrictive policy is biting. Markets see a high probability that the BoE trims Bank Rate from 4 percent to 3.75 percent at its 18 December meeting, although some MPC members still worry that underlying inflation and wage growth near the mid three to mid four percent range remain too high.

Given this mix, the near-term risk bias for GBP is broadly neutral. Any dovish BoE move while the Fed is also cutting might not hurt sterling much against USD, yet weak growth and fiscal uncertainty could weigh more on GBP against the euro and higher yielding commodity currencies.

⚖️ CAD: Oil geopolitics offsets soft domestic services

USDCAD is trading in the high 1.39s after the Bank of Canada’s second consecutive 25 basis point cut took its policy rate to 2.25 percent, even as Q3 GDP surprised to the upside with a 2.6 percent annualized gain. The more recent data are weaker. The November services PMI dropped into the low 40s, and the composite index sits below 50, which signals broad softness.

Brent near 63 dollars gives some support to Canada’s terms of trade, but with rating agencies cutting medium term oil assumptions and recession risks in key export markets, the boost is limited. Against that backdrop, and with the Fed also on the verge of cutting, the relative policy story looks roughly balanced and the near-term risk tilt for CAD is neutral. Markets are watching the 1.38 to 1.40 USDCAD band as a broad reference range.

🔻 CHF: Strong franc meets zero inflation and cautious SNB

The Swiss franc remains firm near multi year highs, with USDCHF trading close to 0.80 and EURCHF around the low to mid 0.93 area, even though Swiss inflation has effectively fallen to zero. The SNB’s policy rate is still at 0 percent and officials have signalled they are willing to intervene in FX markets if needed, which leaves the franc looking expensive relative to both its own fundamentals and peers.

With geopolitical risk elevated but not spiralling and global risk sentiment moderately positive, there is a mild bias for some of the earlier safe haven premium in CHF to unwind, especially against higher yielding European currencies if the ECB confirms a prolonged hold. Near term risk therefore leans toward a slightly weaker franc on a multi week horizon, although any abrupt risk off shock or escalation in Ukraine could still trigger renewed CHF strength.

🔺 JPY: Markets bracing for a BoJ hike and carry risk

USDJPY is still trading around 155, historically very weak for JPY, but the narrative has shifted as markets increasingly anticipate a Bank of Japan rate hike at the 18 to 19 December meeting. Government and central bank communication suggest the policy rate could move from 0.5 to 0.75 percent, and 10-year JGB yields have climbed near 1.9 percent, the highest level since the mid 2000s.

Tokyo core CPI is running around 2.8 percent year on year, and underlying measures are broadly steady, which gives the BoJ room to argue that inflation is no longer far below target. At the same time, Governor Ueda has highlighted uncertainty around the neutral rate and signalled that any tightening cycle will be very gradual, so the path of future hikes is still unclear.

With global investors heavily positioned in yen funded carry trades and the Fed moving toward cuts, the balance of risk still leans toward a stronger JPY over the coming weeks if the BoJ delivers a hike or even just sounds more hawkish than expected. The main near term reference area for USDJPY is 152 to 155, which many see as a zone where policy or verbal intervention risk from the Ministry of Finance increases.

🔺 AUD: Domestic inflation and spending support relative strength

The Australian dollar is trading around 0.66 against USD, supported by sticky domestic inflation and a surprise 1.3 percent jump in October household spending, the strongest monthly gain since early 2024. Headline CPI is running at 3.8 percent year on year and trimmed mean at 3.3 percent, both drifting higher and above the midpoint of the RBA’s target range.

The RBA left the cash rate at 3.60 percent in November, but markets now see a non-trivial chance of another hike by mid 2026. The Board meets again on 9 December. China remains a headwind, with both manufacturing and non-manufacturing PMIs below 50, but for now the domestic data and a softer USD dominate.

With relative rates tilting more in Australia’s favor just as the Fed moves toward cuts, the near-term risk bias for AUD is toward continued outperformance versus USD and low yielders, although persistent Chinese weakness could cap gains on crosses such as AUDJPY and AUDNZD.

🔺 NZD: High beta play on global easing and firm inflation

The New Zealand dollar is trading in the high 0.57s against USD after the RBNZ cut the Official Cash Rate by 25 basis points to 2.25 percent in late November, describing it as a data dependent step with inflation still at the top of its 1 to 3 percent target range.

Annual CPI is running around 3 percent and non-tradeable inflation remains elevated, so markets expect only a shallow easing cycle, with the policy rate still likely to end 2026 above many developed peers. That relative yield, combined with a softer USD and the prospect of Fed cuts, keeps NZD attractive as a high beta expression of global easing, even as China’s slowdown and a fragile domestic housing market add downside risks.

Key reference levels that market participants are watching are 0.58 on the topside in NZDUSD and 1.73 to 1.75 in EURNZD. A sustained break in either direction would likely signal a shift in how investors view Antipodean relative value.

Cross asset wrap

🪙 Gold:
Gold is trading near 4,210 dollars per ounce, slightly off recent highs but still up more than 5 percent over the past month as investors hedge against policy mistakes and geopolitical risk while pricing in Fed cuts. If PCE and the Fed confirm a gradual easing path with real yields drifting lower, the underlying backdrop remains supportive, although a sharp rebound in the dollar from sub 99 DXY could trigger bouts of consolidation.

🛢 Oil:
Brent is hovering around 63 dollars, supported by Ukrainian attacks on Russian oil infrastructure and stalled peace talks, yet capped by concerns about oversupply and reduced long term price assumptions from rating agencies. For now, the market looks range bound, with traders using oil more as a barometer of geopolitical risk than as a direct inflation alarm bell.

📈 Stocks:
The MSCI World index is up about 0.2 percent today and roughly mid-teens in percentage terms over the past year, while the VIX sits near 16. This signals a calm but alert equity market that is leaning on the “Fed cutting soon” narrative. Within equities, rate sensitive growth and tech have lagged slightly on valuation concerns, while more cyclical sectors and small caps benefit from lower rate expectations.

₿ Crypto:
Bitcoin is trading around 93,000 dollars after a sharp rebound in recent days, buoyed by expectations that easier Fed policy will support speculative assets and by ongoing interest in spot ETF products. Crypto remains highly volatile and sensitive to shifts in real yields and dollar liquidity, so any hawkish surprise from the Fed or a sudden risk off episode could quickly reverse recent gains.

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.