Forex Major Currencies Outlook (Dec 15 – Dec 19)
ECB, BoE and BoJ meetings as well as employment data from the US and UK coupled with inflation data from the US, Canada and UK, economic data from China and Q3 GDP from New Zealand will highlight the week ahead of us as we slowly wind down for the year.
USD
Fed decided to lower interest rate by 25bp to 3.50-3.75% range as was widely expected. There was a 9-3 vote with two members (Schmid and Goolsbee) voting for no change and one member (Miran) voting for a 50bp rate cut. This is the third consecutive cut (75bp) and it now amounts to a total of 175bp in rate cuts since September of 2024. “The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.” Fed will buy T-Bills in excess of the MBS roll-off, to ensure ample reserves. They will start on December 12 with $40bn of buying for a few months and that amount will be lowered in later months. They remain data-dependent in assessing the appropriate stance of monetary policy.
SEP shows only one cut for 2026, same as in September. It also shows growth rising in 2026 to 2.3% compared to 1.8% as seen in September. Powell highlighted strong outlook for productivity growth as main reason for increase in GDP projection. The unemployment rate projection was unchanged while inflation is seen coming down a bit faster than previously projected and reaching 2% in 2028.
Powell gave out dovish vibes at the press conference. He said that data shows economy adding 40k jobs per month since April. FOMC participants feel that, based on their own data, the number is overstated by as much as 60k per month which will lead to economy losing 20k jobs per month. He also feels that if we strip out price increases caused by tariffs, which is a one-time price increase, inflation is in low 2s, very close to the target. Weekly ADP report showed economy adding 4.75k jobs on average in a 4-week period vs losing 13.5k jobs as seen last week.
The yield on a 10y Treasury started the week at 4.14%, rose to 4.20% and finished the week at around 4.19%. The yield on 2y Treasury started the week at 3.57%, rose to 3.63% and finished the week at around 3.52%. Spread between 2y and 10y Treasuries started the week at 58bp and finished the week at 67bp. FedWatchTool sees the probability of a 25bp rate cut at January meeting at around 27% while probability of no change is at around 73%. Silver broke above $64 reaching new all time high and now being up by more than 114% YTD.
This week we will have NFP data for October and November, CPI data for November as well as October retail sales.
Important news for USD:
Tuesday:
NFP
Unemployment Rate
Retail Sales
Thursday:
CPI
EUR
ECB member of the Governing Council Schnabel stated that the economy has been much more resilient than expected and that current level of rates is appropriate. She added that the next move in rates will likely be up, rate hike, clarifying that she is comfortable with markets pricing it. She reiterated that services inflation remains the most important challenge. Additionally, she hinted at the idea that ECB might revise their growth forecast up at their next week’s meeting. Schnabel is a well-known hawk.
This week we will have preliminary December PMI data expected to show improvements and ECB meeting. There will be no change to rate but there will be new growth and inflation projections which will be, along with Lagarde’s tone, scrutinized for more details on rate path.
Important news for EUR:
Tuesday:
Manufacturing PMI (Eurozone, Germany, France)
Services PMI (Eurozone, Germany, France)
Composite PMI (Eurozone, Germany, France)
Thursday:
ECB Interest Rate Decision
GBP
Markets seem to have accepted UK’s Autumn budget and GBP has stood its ground gaining during the week against risk off currencies, as well as EUR, but it lost ground against risk on currencies. October GDP came in at -0.1% m/m vs 0.1% m/m as expected showing that economy started Q4 on a weak side.
This week we will have employment data, preliminary December PMI data, November inflation data and BoE meeting. The bank is expected to deliver a 25bp rate cut and thus completes the cycle of one cut per quarter in 2025.
Important news for GBP:
Tuesday:
Payrolls Change
Unemployment Rate
Manufacturing PMI
Services PMI
Composite PMI
Wednesday:
CPI
Thursday:
BoE Interest Rate Decision
AUD
RBA decided to leave its cash rate unchanged at 3.60% as was widely expected. The decision was unanimous. The board expressed their concern with a “more broadly based pick-up in inflation” as risks to inflation move to the upside. They see economic activity continuing to recover with growth led by both consumption and investment. Labor market remains somewhat tight but further modest easing is expected. The board remains focused on inflation and labor market when deciding future path of rate hikes.
RBA governor Bullock stated that members discussed circumstances that might lead to tightening but there was no explicit case considered at this meeting. She emphasized that bank has to be careful with monthly CPI data as it is a new series and added that inflation, quarterly report as well, and jobs data will be important for February meeting. Additionally, she does not see the need for future rate cuts as upside risks outweigh downside risks. She added that if inflation data does not show slowing down it will be considered for the February decision. RBA has moved hawkish with messages coming out of this meeting and AUD is loving it. Markets are positioning for a rate hike in March if inflation stays at current levels.
November employment report showed weakness in the labor market. The economy lost 21.3k jobs instead of adding 20k jobs as was expected. The unemployment rate managed to stay unchanged at 4.3% but only because participation rate dropped to 66.7% from 66.9% in October. Additional, red flag can be seen in the composition of jobs as economy dropped 56.5k full-time jobs and added 35.2k jobs. This report has taken winds out of the AUD sail and is bringing into question how long will RBA manage to stay on hold before intervening to save the labor market.
Chinese trade surplus reached new highs in November as it rose to $111.68bn from $90.07bn in October as exports rose 5.9% y/y while imports rose 1.9% y/y. Surplus has surpassed $1 trillion YTD for the first time in history. Exports of ships, semi-conductors and autos saw biggest increases. Looking at export destinations exports to EU surged. As a result, French President Emanuel Macron threatened China with tariffs if trade imbalances persist in the coming months. Exports to the US continued to decline. November CPI printed 0.7% y/y, as expected, up from 0.2% y/y in October. This is the highest level since February of 2023 and is attributed to the rise in food prices. PPI has broken its streak of three consecutive months with improvements and printed -2.2% y/y vs -2.1% y/y the previous month. This reading has been in negative territory for thirty eight months.
This week we will have industrial production and retail sales data from China.
Important news for AUD:
Monday:
Industrial Production (China)
Retail Sales (China)
NZD
Kiwi enjoyed strong start of the week as risk on mood and hawkish messaging from last RBNZ meeting helped push it higher but as the mood turned sour from Thursday on Kiwi managed to gain ground only against USD.
This week we will have Q3 GDP data.
Important news for NZD:
Wednesday:
GDP
CAD
BoC kept rate unchanged at 2.25% as was widely expected. The statement shows that Q3 GDP surprised to the upside but members caution that it was due to stronger trade flows while consumption remained flat. Members warn that GDP will weaken in Q4. Labor market showed welcoming sings of improvement. Inflation remains near target and it is appropriate to keep rate at current level given the level of inflation.
BoC governor Macklem stated that board assessed that it is prudent to keep rates unchanged given the current balance of risks. He was pleased that economy showed greater resilience than expected while US tariffs hit the key sectors. Price pressures remain contained as inflation is evolving largely as expected. He added that labor market started to show modest improvement and that given the higher uncertainty BoC is ready to act if the outlook changes. Macklem emphasized that Canada faces a structural transition, not just a cyclical slowdown. The bank remains data-dependent and will take its decisions meeting-by-meeting.
This week we will have inflation data.
Important news for CAD:
Monday:
CPI
JPY
Final reading of Q3 GDP saw it revised down to -2.3% annualized from -1.8% annualized as preliminary reported. Private consumption improved to 0.2% from 0.1% as seen in advanced reading but the big drop in CAPEX, we wrote about it last week, pushed its contribution from 1% in advanced reading to -0.2% in final reading. October labor cash earnings continued to rise as they printed 2.6% y/y vs 2.2% y/y and up from 2.1% y/y in September. Unfortunately due to high inflation real wages declined by 0.7% y/y continuing their downward path. The yield on 10y JGB continued to rise and reached 1.97%.
This week we will have BoJ meeting. Markets are pricing in high chance of a rate hike.
Important news for JPY:
Friday:
BoJ Interest Rate Decision
CHF
SNB total sight deposits for the week ending December 5 came in at CHF461.9bn vs CHF458.5bn the previous week. Deposits are meandering within a well-established range while Swissy is losing ground due to weak inflation print and risk on mood in the markets.
SNB has left rate unchanged at 0% as was widely expected. The statement shows that economic outlook improved slightly due to lower tariffs from the US. Developments in the global economy remain the main risk for Switzerland. Bank is prepared to act in FX market as necessary, reiteration of a well-known stance. New projections see GDP at 1.5% for 2025 (top of the 1-1.5% range projected previously) while it remains at 1% for 2026, Inflation is seen slowing down in 2026 (0.3% vs 0.5% previously) as well as in 2027 (0.6% vs 0.7% previously). Chairman Schlagel stated that current monetary policy will help push inflation up in the coming months, showing no concerns for the weak inflation prints in past couple of months. He characterized monetary policy as expansive and growth supporting.
