Markets Weigh Fed Dovishness (15-19 December)
Global markets wrapped the week with notable moves across currencies, commodities, and bond markets amid fresh central‑bank signals and key economic releases. The Federal Reserve delivered its third consecutive 25 bps rate cut, while signaling only one more cut in 2026, tempering easing expectations. That, coupled with hawkish leanings from other major central banks, pressured the dollar yet again.
Gold reclaimed ground and approached record territory as rate‑cut bets strengthened and real yields eased. Currencies diverged with euro strength on broader USD weakness, the pound weighed by weak UK growth, and the yen supported by BOJ tightening speculation.
Market Drivers & Catalysts
- Federal Reserve Policy Outlook: The Fed cut rates to 3.50%–3.75%, but indicated a potentially limited path for further easing, with inflation concerns balanced against a cooling labor market.
- Central Bank Divergence: ECB rhetoric tightened around steady policy, while the BOE and BOJ signaled mixed prospects, adding complexity for FX and bonds.
- Gold’s Rally on Easing Odds: Softer yields and dovish Fed tones lifted bullion toward multi‑year highs.
- Commodities Under Pressure: Brent crude dropped on oversupply risks flagged by the IEA and OPEC’s steady 2026 outlook.
- Mixed Macro Signals: Soft US jobless claims, elevated job openings, resilient China trade data, but rising initial claims highlighted nuances in the labor market.
Fixed Income
- United States 10‑Year Treasury: The 10‑year Treasury yield climbed toward 4.2%, its highest since early September, after Fed officials balanced dovish policy with concerns about inflation and front‑loading cuts. Divergent views from regional Fed presidents kept markets cautious on the pace of easing.
- United Kingdom 10‑Year Gilt: The gilt yield retreated below 4.5% after weak UK GDP data softened growth expectations. Investors significantly priced weak fundamentals into rate cut prospects, with markets seeing near‑90% odds of a 25 bps cut next year.
- Japan 10‑Year Government Bond: The JGB yield ticked up to around 1.94%, driven by heightened expectations that the BOJ could tighten policy soon. Stronger macro readings and inflation support underpinned yield gains, while fiscal stimulus and bond issuance added complexity.
- Germany 10‑Year Bund: Bund yields remained elevated above 2.86%, near nine‑month highs, as markets priced global monetary divergence and stronger regional growth. ECB guidance leaned toward steady rates, supported by resilient inflation.
Commodities
Gold climbed above $4,300/oz on Friday, retesting multi‑month highs as rate‑cut expectations strengthened. Cooling labor market signals and dovish Fed rhetoric supported safe‑haven demand and pushed real yields lower.
Silver slipped below $62/oz after briefly hitting record highs earlier in the week, as profit‑taking followed strong gains. Bullish fundamentals remain due to supply tightness and ETF demand.
Currencies
- U.S. Dollar Index (DXY): The DXY hovered near two‑month lows around 98.3, marking a third straight weekly decline as the Fed’s dovish actions and uncertainties around 2026 policy lowered yield differentials.
- Euro: EUR/USD rose to roughly $1.17, its strongest level since early October. ECB officials scaled back expectations for immediate easing and highlighted resilient growth, while broad dollar softness aided gains.
- British Pound: GBP/USD dipped slightly below $1.34 after UK GDP unexpectedly contracted in October. Despite this, the pound ended the week with a weekly gain amid a weaker USD and prospects of future BOE easing.
- Japanese Yen: USD/JPY traded near 155.6, with the yen supported by speculation that the BOJ may raise rates. Positive inflation and macro prints, coupled with the Japanese government's resolve against sharp currency swings, lifted sentiment.
Economic Data Highlights
- U.S. Federal Reserve Interest Rate Decision: The Federal Open Market Committee cut the funds rate by 25 bps to 3.50%–3.75%, the third cut of 2025. Policymakers projected only one additional cut in 2026, alongside modest GDP upgrades and slight downward revisions to PCE inflation expectations. Unemployment forecasts remained unchanged.
- U.S. Initial Jobless Claims (Weekly): Initial claims jumped by 44,000 to 236,000 for the week ending December 6, marking the largest weekly increase since March 2020 after a seasonal dip. Continuing claims fell to a multi‑year low, indicating labor market resilience despite short‑term volatility.
- U.S. JOLTS Job Openings (Oct): Job openings edged up to 7.67 million in October, reflecting firm labor demand across trade, healthcare, and transportation sectors even as vacancies varied regionally. The figures were published together after shutdown delays.
- China Balance of Trade (Nov): China’s trade surplus exceeded $1 trillion for the first 11 months of 2025. November alone posted a $112 billion surplus, with exports up 5.9% YoY, driven by non‑U.S. markets, while imports climbed 1.9%.
Macro Calendar Highlights
- U.S. Federal Reserve Rate Decision
- U.S. Initial Jobless Claims
- U.S. JOLTS Job Openings
- China Trade Balance Report
