The past week was entirely dominated by the Federal Reserve's policy decisions. The main takeaway: the market, which had been trading "alogically" for five months, finally showed a logical reaction to the dollar's weakening. However, the biggest surprise lies in the Fed's 2026 projections, which could become a serious obstacle to further USD depreciation.
The Fed delivered the market-anticipated decision: the key interest rate was cut by 0.25%.
🔑Key Factors and Reaction:
EUR/USD Reaction: The pair resumed its upward movement, breaking out of the lower boundary of the 1.1400–1.1830 side channel. The rise is driven more by technical factors (exiting the flat) than by the fundamental news alone.
The 2026 Surprise: Jerome Powell and the Fed leadership signaled they are ready to pause the easing process. The next rate cut will not happen soon—not until inflation moves closer to the 2% target.
Bottom Line for USD: The lack of a clear signal for a series of continuous cuts (i.e., the "pause") is actually good news for the dollar. In the short term, this may limit further downside, even as a market tired of the flat range searches for reasons to rally against the USD.
EUR/USD Forecast: Technically, the pair has a high chance of testing the upper boundary of the side channel at 1.1830 before the New Year.
The Yen remains a focus point due to a strong divergence from the Fed's policy.
🔑Key Factors and Reaction:
Dovish Risk: While the Fed cuts rates, the Bank of Japan (BoJ), despite a pause in tightening, might resume rate cuts. BoJ Governor Kazuo Ueda hinted at this possibility.
Domestic Politics: Prime Minister Sanae Takaichi advocates for monetary easing, which weakens the Yen.
Key Event Ahead: Next week's final BoJ rate decision is critical. If the regulator raises rates, it will be the strongest supporting factor for the JPY, creating a significant divergence with the US.
USD/JPY Forecast: Amid the potential divergence in rates, a decline in the USD/JPY pair is forecasted, with potential to reach 153.00 by year-end.
The Bank of Canada (BoC) held its policy rate steady at 2.25%, as expected.
🔑Ключевые факторы:
Hawkish Risks: The BoC views the current rate as optimal, but the market sees risks of rising inflation (resilient labor market, increased household net worth).
Yield Spread: Yield spread forecasts are shifting in favor of Canadian bonds, suggesting the long-term strengthening of the 'Loonie' (CAD) against a weaker USD.
Key Event: The market awaits CPI inflation data on Monday (December 15). A positive report will increase the likelihood of a BoC rate hike in 2026.
USD/CAD Forecast: Based on the combined factors and general USD weakness, the trend for further USD/CAD decline remains highly probable.
🔑Key Factors and Reaction:
GBP/JPY: The pair is gathering momentum again, aiming for levels last seen in 2008. This is driven by the weakening Yen (due to Japan's budget spending) and overall risk appetite.
Limiting Factors: Expectations of an imminent Bank of England (BoE) rate cut at next week's meeting, coupled with negative GDP and industrial production data, will limit the Pound's further appreciation.
🔑Key Factors and Reaction:
Gold bounced off the $4200 level, accelerating its upward momentum. The key drivers are:
USD Weakness: Powell's comments on significant risks to the labor market caused the USD to weaken. This trend was amplified after the Department of Labor reported a sharp increase in initial jobless claims (to 236K), fueling pressure on the USD.
Inflation Expectations: Investors, contrary to the Fed's forecast of only one cut in 2026, anticipate two or more easing moves, which traditionally supports the precious metal's price.
Geopolitics: Slow progress in ceasefire talks between Russia and Ukraine sustains demand for safe-haven assets, including Gold.
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