Intro
As mentioned in the last report, the FX market is relatively calm currently as the year draws to a close.
Nearly all the price differences were lower than 1%, and there were no high-impact economic events. Thus, our sentiment biases remain unchanged and are likely to remain this way next week as well.
Market Overview
Here is a brief sentiment report for all major currencies.
US Dollar (USD): Neutral
The Fed has shifted firmly into easing mode. The Dec 10 FOMC statement highlights elevated uncertainty and says downside risks to employment have risen, reinforcing a slower-growth narrative and reducing the USD’s yield advantage.
Some officials are now pushing for a pause into spring 2026 because inflation may be stickier than the headline data suggests (and tariff pass-through remains a risk), which can occasionally support USD on short-term repricing.
Key news to watch: Initial Jobless Claims on Wednesday
Euro (EUR): Bullish
The ECB held policy steady at its latest meeting and upgraded growth forecasts (e.g., around 1.4% for 2025), signalling more confidence in a ‘grind higher outlook rather than a downturn.
With inflation close to target and the Fed already cutting, EUR retains a relative policy advantage versus USD, though global trade/tariff uncertainty still caps upside during risk-off waves.
British Pound (GBP): Neutral
The Bank of England cut 25 bps to 3.75% (18 Dec) but stressed that future moves will be ‘closer calls.’ This implies a cautious, incremental easing path rather than rapid cuts.
That helps explain why GBP can still find support on dips, yet softer growth and a clearer easing bias reduce sterling’s rate support versus peers that are holding.
Japanese Yen (JPY): Neutral
The BoJ recently moved rates to around 0.75% (a 30-year high) and continues to signal it may not be done if wages/inflation stay firm. This is a meaningful shift toward normalisation.
However, the yen can still weaken episodically on fiscal/political concerns and risk-on carry behaviour, so the path is rarely smooth even with improving fundamentals.
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
The BoC held at 2.25% (10 Dec) and framed the economy as proving more resilient than feared, which helps put a floor under CAD. Inflation dynamics also look contained (recent reporting cites ~2.2% y/y with core easing), supporting the “stable policy” narrative. However, CAD remains tethered to oil and North American risk tone.
Swiss Franc (CHF): Bullish
The SNB held at 0% (11 Dec) despite very low inflation, maintaining Switzerland’s ‘low inflation + safe haven’ appeal while keeping intervention tools available if CHF strength becomes disruptive.
That combination tends to keep CHF structurally firm, even if the SNB’s smoothing creates occasional short-lived pullbacks.
