Intro
While the kiwi and Aussie were strong of late, they didn’t perform as well this time (although NZD was the strongest of the two). Despite being down the previous week, the euro picked up, keeping it aligned with my long-standing bullish bias. Most of the other currencies moved in line with our sentiment ratings amid a period of several high-impact news events.
Similar events will take place this week as there are three interest rate decisions, with currencies like USD and GBP linked to other notable economic events.
Let’s recap our fundamental bias with the major currencies for this week
Market Overview
Here is a brief sentiment report for all major currencies.
US Dollar (USD): Bearish
The Fed cut 25 bps on 10 Dec, with economic officials now signalling a pause with just one cut pencilled in for 2026. This implies the easing impulse is losing urgency even as rates are already moving lower.
Near-term USD support can come from “less-dovish-than-feared” Fed guidance, but the broader backdrop is that peak rates are behind and the market is increasingly focused on softer labour signals (claims volatility aside).
Key news to watch: Nonfarm Payrolls on Tuesday; core/inflation rate YoY and Initial Jobless Claims on Thursday
Euro (EUR): Bullish
Eurozone inflation ticked up to 2.2% in November, reinforcing the idea that the ECB can stay patient rather than rush back into cuts.
A Reuters poll also points to the ECB holding the deposit rate at 2% next week and potentially staying steady well into 2026, which supports EUR on dips versus a cutting Fed.
Key news to watch: interest rate decision on Thursday.
British Pound (GBP): Neutral
UK inflation has cooled (CPI 3.6% in October), but growth momentum is deteriorating—UK GDP contracted 0.1% in October, strengthening the case for easier policy.
Reuters polling now shows economists broadly expecting the BoE to cut to 3.75% on 18 Dec, which reduces sterling’s rate support into year-end.
Key news to watch: unemployment rate on Tuesday; inflation rate YoY on Wednesday; interest rate decision on Thursday
Japanese Yen (JPY): Neutral
Tokyo core inflation remains firm (2.8% y/y in November), keeping pressure on the Bank of Japan to normalise.
There is an expectation that the central bank will hike the interest rate to 0.75% this week and signal further hikes. This is a fundamental supporting force for the yen as US-Japan spreads compress.
I may change my sentiment to bullish if the price action behaves accordingly, considering that December and January have historically been quite good for the currency.
Key news to watch: inflation rate YoY and interest rate decision on Friday.
Australian dollar (AUD): Bullish
The RBA held at 3.60% on 9 Dec and explicitly flagged that hiking risk can’t be ruled out if inflation proves persistent.
With Australia’s monthly CPI running hot (3.8% y/y in October; trimmed mean 3.3%), rate-cut expectations have faded, which supports AUD. However, China/commodities still decide whether moves extend or fade.
New Zealand dollar (NZD): Bullish
The RBNZ cut the OCR to 2.25% on 26 Nov, keeping the New Zealand dollar clearly on the easier-policy side of the G8 complex.
While Q3 inflation hit 3.0% (top of the band), reporting shows the Bank is emphasising that the policy path isn’t preset and it expects inflation to come down as spare capacity builds.
Still, NZD is historically bullish this month and should piggyback off the gains of its counterpart, AUD. However, I may switch lower soon as we head into January, where the currency doesn’t perform as well as in December.
Canadian dollar (CAD): Neutral
Canada’s policy rate now sits at 2.25% after recent cuts, and the IMF’s Article IV statement explicitly endorses this move. They noted that inflation is near 2%, expectations are well anchored, and “the economy is operating below potential.”
Growth has slowed, unemployment has risen, and domestic demand is soft, but contained price pressures give the BoC room to support the cycle
While fundamentals aren’t stellar, the currency can still hold its own or firm modestly against the USD amid broader dollar weakness.
Key news to watch: interest rate decision on Wednesday
Swiss Franc (CHF): Neutral
The SNB held the policy rate at 0% on 11 Dec and reiterated it is willing to be active in FX markets if needed: classic “firm CHF, but managed at the extremes.”
With Swiss inflation extremely low, the Swiss franc maintains its safe-haven bid, even though intervention risk can create sudden air pockets.
