The interest rate cut storm swept the world, led by the Federal Reserve, and the U.S. dollar index came under pressure

The U.S. dollar index fell 0.1% on Friday to 98.994, close to a five-week low. Market traders are generally paying attention to this week's Federal Reserve resolution and expect policymakers to decide to cut interest rates at this meeting. Markets are also focusing on the prospect that White House economic adviser Hassett may take over as Fed chairman after Powell's term ends, and he is expected to push for more interest rate cuts. Some analysts believe that market expectations for an interest rate cut this week and a possible more dovish Fed stance in the future will continue to put pressure on the dollar. The next two weeks will usher in policy decisions from multiple central banks. In addition to the Federal Reserve, the central banks of Australia, Canada and Switzerland will announce decisions this week. In the following week, the Bank of Japan, the European Central Bank, the Bank of England and the Riksbank will also issue resolutions one after another.

Analysis of major currency trends

US dollar: As of press time, the US dollar index is hovering around 98.94. The US dollar is still overvalued relative to major currencies, so the current weakening trend is reasonable. Data released on Friday showed that U.S. consumer sentiment improved in early December, but this had a limited effect on boosting the dollar. From the daily level, the U.S. dollar index has recently shown a standard weak structure: the index continues to run below the 100-day and 200-day moving averages, indicating that the medium-term trend is bearish. The MACD kinetic energy column remains below the zero axis, indicating that short forces are still dominant. The K-line has been blocked by the daily pressure zone in the 100.80-101.20 range many times, and the rebound is obviously weak. The short-term key support level below is located in the 98.60-98.80 area. If it falls below, it may open further downside space, pointing to the 98 integer mark.

Euro: As of press time, the EUR/USD is hovering around 1.1648. The cost for Eurozone investors to hedge U.S. investments has dropped significantly. The three-month hedging cost has dropped from 2.45% in July to 1.82%, significantly increasing the attractiveness of U.S. bond carry trades. As the Federal Reserve continues to cut interest rates, hedging costs may fall further, and the behavior of Eurozone investors selling dollars and returning euros will become a key driver of the rise of EUR/USD in 2026. In the short term, EUR/USD is expected to fluctuate in the 1.1700-1.1730 range, and the 1.1630-1.1640 range will provide strong technical support.

Sterling: As of press time, GBP/USD is hovering around 1.3331. Expectations of interest rate cuts suppress the US dollar and provide upward support for GBP/USD. On the other hand, uncertainty about the UK's economic outlook and market expectations that the Bank of England may accelerate interest rate cuts limited further gains in the pound. Most analysts expect the Bank of England to cut interest rates to 3.75% in December, and the market pricing probability is about 90%. Technically, the RSI indicator is at 61, indicating positive momentum and not reaching overbought territory. Initial resistance above: Bollinger Band upper track 1.3348. If it breaks through at the close, the upside can be extended. Lower support: 100-day EMA1.3300 does not break, maintaining bullish upward trend. The short-term bullish pattern is established. If the moving average support is maintained, the upward trend can be maintained; if it falls back to near the mid-range, short-term consolidation may occur.

Foreign exchange market news summary

1. The United States and Ukraine concluded three days of talks to mainly discuss territory and security issues

According to US media reports, the United States and Ukraine delegations concluded a three-day meeting in Miami, Florida on the 6th. The two sides mainly discussed territory and security issues. The U.S. Axios news website reported on the 6th, citing people familiar with the matter, that discussions on territorial issues are difficult. Russia still requires Ukraine to withdraw its troops from parts of Donbas controlled by Ukraine, and the United States is trying to cn.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.orge up with a new plan. Another key issue is U.S. security assurances for Ukraine. A source said that the two sides had made significant progress and were close to reaching an agreement, but further consultations were still needed to ensure that both sides interpreted the draft security guarantees in a consistent manner.

2. Macron will go to London to assess the situation in Ukraine with the leaders of Britain, Germany and Ukraine

On December 6, local time, French President Macron announced that he will go to London on the 8th to meet with Ukrainian President Zelensky, British Prime Minister Starmer and German Chancellor Mertz to jointly assess the current situation in Ukraine.peace negotiations under the mediation of the United States. Macron said that the situation in Ukraine is related to the security of the entire Europe, and Europe will continue to work with the United States to provide security guarantees for Ukraine.

3. The Fed’s “Christmas Surprise”: Transition from Hesitation to Decision

As the bell rang in December, the market’s expectations for the Fed’s next move experienced a dramatic reversal. Just three weeks ago, investors were skeptical of a rate cut in the final month of the year, when a trickle of economic data and hawkish signals from Fed officials sent the Chicago Mercantile Exchange's implied probability falling below 50%. Those data included jobs reports, inflation measures and consumer spending, which briefly raised concerns about an overheating economy or a shaky recovery. However, in just a few weeks, the weather vane has turned sharply downward, and a "Christmas interest rate cut" seems to be a foregone conclusion. In particular, Berenberg economists noted that the recent modest rise in the unemployment rate - which has crept up from previous lows - was enough to convince Fed officials to take action, and they are expected to implement a modest 25 basis points interest rate cut on December 10, which is equivalent to a 0.25 percentage point reduction in the benchmark rate, to stimulate economic growth and ease labor market pressure.

4. The crossroads of the Bank of England: the tug-of-war between interest rate cuts and wait-and-see

cn.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.orgpared with the stability of Switzerland, the situation of the Bank of England is even more confusing. Its Monetary Policy cn.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.orgmittee will hold a meeting on December 18. The opinions of analysts are sharply divided, just like a debate match. On the one hand, experts at T. Rowe Price firmly believe that interest rate cuts are inevitable. They predict that the British labor market will further deteriorate in the next few months - the unemployment rate may rise and wage growth will slow down - which will drag down the overall economic vitality. Therefore, interest rates are expected to be reduced to 3% or lower in 2026 to boost consumption and investment. On the other hand, Berenberg's views are more cautious. They believe that the conditions for an interest rate cut at the December meeting are not yet mature because stubborn inflation still exists, supply chain problems and energy price fluctuations may push up prices, causing the central bank to have to postpone action until the New Year.

5. The European Central Bank's cautious watch: Stabilize its position to cope with the "trough" of inflation

This week the European Central Bank will also usher in its annual final interest rate meeting. After keeping the benchmark interest rate at 2% for the second consecutive time in October, the market expected the bank to continue to "stand still." Analysts at Deutsche Bank analyzed that although inflation caused by energy prices may be lower than the target in 2026 - such as excessive natural gas supply leading to downward prices - the European economy is huge and there are obvious differences among member countries, and rash adjustments may amplify the risk of differentiation. As a result, rates are likely to remain stable through this "inflation trough" period, with a focus on monitoring core eurozone inflation, wage negotiations and the impact of geopolitical events such as the situation in Ukraine on energy. The ECB's strategy reflects its usual prudent approach and aims to pave the way for a potential recovery next year while avoiding excessive debt burdenscountry is in trouble.

Institutional Views

1. CICC: If Hassett becomes the chairman of the Federal Reserve, U.S. bond interest rates and the U.S. dollar may first fall and then rise.

CICC Research reported that under baseline conditions, if Hassett becomes the new Federal Reserve Chairman, U.S. bond interest rates and the U.S. dollar may first fall and then rise, which is generally positive for U.S. stocks. Judging from the timeline, Trump announces the nomination of a new chairman in early 2026. For Hassett, he needs to be nominated as a Fed governor and confirmed by the Senate, then nominated as chairman and confirmed again. He will officially become chairman when the current chairman Powell expires in May 2026, and start leading the June FOMC meeting at the earliest. The first quarter of next year will be a critical period for the nomination of a new chairman to begin to affect market expectations. If Hassett's stance is too dovish at that time, it does not rule out the possibility that U.S. bond interest rates and the U.S. dollar will decline at a stage higher than expected. However, as long as they do not significantly cross the line to the point of "worry about loss of independence," if expectations are fulfilled and the U.S. economy recovers, U.S. bond interest rates and the U.S. dollar may turn upward.

2. Market analysis: The Reserve Bank of Australia may release a hawkish signal at its year-end meeting

The Reserve Bank of Australia will announce its last interest rate decision of the year on Tuesday, and the market does not expect it to adjust interest rates. Still, this will be one of the most watchable conferences of the year. A large amount of data available to the Reserve Bank of Australia shows that demand is strong, inflation risks are rising, the economy is approaching the limit of production capacity, and the possibility of releasing a hawkish signal is very high. Economists at some major banks have begun crunching the numbers, predicting a possible tightening of monetary policy in February after the Reserve Bank of Australia gets fourth-quarter inflation data.

3. The Governor of the Bank of Japan hinted at an interest rate hike and the market is still betting on a weaker yen

The market speculates that the Bank of Japan is expected to raise interest rates this month, but participants are still betting that the yen will continue to weaken. Traders at Bank of America Corp., Nomura Holdings Inc. and Royal Canadian Capital Markets said investor positions reflected that bet. Citigroup's "pain index" for the yen remains deeply negative, indicating that the market's negative sentiment towards the yen continues to exist. Investors remain bearish on the yen even after Bank of Japan Governor Kazuo Ueda hinted that interest rates may rise soon, and the Bank of Japan is reported to be preparing to raise interest rates in December without a major shock to the economy or financial markets. The reason is that even if the Bank of Japan takes action, yields in Japan are still expected to be significantly lower than those in the United States, which is more positive for the dollar. Ivan Stamenovich, head of G-10 currency trading in Asia Pacific at Bank of America, said: "Positions are still leaning towards betting that USD/JPY will continue to move higher before the end of the year, and unless the Bank of Japan brings a real surprise, this trend will not change." He added that Ueda's hawkish cn.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.org.xmtrade.orgments triggered discussions about the currency pair, but there was no substantial shift in market sentiment.

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