Risk appetite was slightly subdued on Thursday morning as traders revisited the Federal Open Market Committee's (FOMC) rate cut decision, economic projections, and the dot-plot released late Wednesday. The market sentiment faced additional challenges due to the Federal Reserve's reluctance to commit to further rate cuts, along with mixed signals from Federal Reserve Chair Jerome Powell. However, late Wednesday saw a risk-on rally after the Fed decided to cut rates by 0.25%, in line with expectations, without sounding overly hawkish.
The Federal Reserve reduced its target range by 25 basis points to 3.5%–3.75%, and announced it would purchase bills, which traders and analysts are calling a "mini-QE." While the rate cut was expected to be hawkish, it turned out to be more neutral as Powell emphasized the Fed was “well-positioned” going forward.
The vote was split 9–3, with Fed Governors Austan D. Goolsbee and Jeffrey R. Schmid dissenting in favor of keeping rates unchanged, while Governor Miran dissented in the opposite direction, advocating for a 50-basis-point cut.
Looking at the economic projections for the end of the year, the Federal Reserve raised its GDP growth forecast to 2.3% from 1.8%. The unemployment rate was projected to stay at 4.4%, while PCE inflation (both headline and core) was revised lower: headline inflation to 2.4% from 2.6%, and core inflation to 2.5% from 2.6%. The year-end Federal Funds target was maintained at 3.4%.
Powell described the rate cut as part of a careful shift toward neutral policy, with the Fed continuing to evaluate data on a "meeting by meeting" basis. He acknowledged that while inflation pressures remain somewhat high, goods inflation is driven by tariffs, and services inflation is moderating. Powell also emphasized that the Fed is focused on guiding inflation back to 2% while avoiding significant harm to the labor market.
Markets now anticipate a pause in January before a gradual downward trend in rates.
The market reacted positively to Powell's comments, though U.S. stocks initially dipped on news that rates are now near neutral, before recovering as inflation fears eased, and growth appeared steady.
Wall Street began Wednesday’s trading mixed, but ended the day with heavy gains, while Treasury bond yields dropped following the Fed's statement.
Meanwhile, U.S. Economic Advisor Kevin Hassett suggested that the Fed has room to cut rates further. The U.S. Employment Cost Index for Q3 came in at 0.8%, slightly below the expected 0.9%.
Elsewhere, U.S. Trade Representative Jamieson Greer indicated that the future of the USMCA trade agreement remains uncertain, with the possibility that key elements of the agreement may survive, though there may be tighter "rules of origin."
In Mexico, the Senate approved tariffs of 5%-50% on imports from China and other Asian countries without trade deals with Mexico, including India, South Korea, Thailand, and Indonesia.
Japan’s Q4 business survey index rose by 4.7%, exceeding the expected 3.8%.
In the UK, the RICS house price survey showed a smaller-than-expected decline of -16, compared to -21 expected and -19 previously.
Australia's November employment data showed a loss of 21.3K jobs, far worse than the expected gain of 20.0K. The unemployment rate held steady at 4.3%, though the decline in participation suggests a higher unemployment rate could have occurred if participation had stayed constant. The Reserve Bank of Australia (RBA) had recently maintained its stance, with markets speculating on a 33% chance of a rate hike by March.
The Australian dollar (AUD/USD) retraced some of its post-Fed gains, as stocks in Asia stalled and profit-taking emerged. The positive Fed GDP growth forecast for 2026 is a good sign for global growth, particularly for Australian commodity exports. However, there is concern over China’s stock struggles and the lack of optimism for Australia’s growth.
New Zealand’s Q3 manufacturing sales showed a 1.1% increase, a recovery after a poor Q2 reading.
The Bank of Canada kept its rates unchanged at 2.25% during its December meeting, with Governor Tiff Macklem noting that the policy rate is appropriate to keep inflation near 2% while managing the impact of U.S. trade conflicts on Canadian industries. The Bank also acknowledged that inflation pressures remain contained.
The U.S. Dollar Index (DXY) hit a seven-week low before bouncing back, challenging EURUSD bulls after it had reached a two-month high. Meanwhile, GBPUSD also pulled back from a seven-week high, and USDJPY faced continued pressure. AUDUSD retraced gains after hitting a two-month high, while NZDUSD reversed its two-day uptrend. USDCAD hit an 11-week low before breaking its two-day downtrend. Crude oil prices faced a slight pullback from a two-week low, and gold ended a two-day winning streak. Cryptocurrencies continued their decline despite a weaker U.S. dollar. Wall Street closed positively, but shares in the Asia-Pacific traded mixed.
EUR/USD saw its biggest daily gain since September 16, breaking a four-day losing streak to reach a two-month high, as the U.S. Dollar dropped after the Federal Open Market Committee's (FOMC) decision. Hawkish comments from European Central Bank (ECB) officials also supported EURUSD bulls. However, the Euro pulled back from its multi-day high early Thursday, posting mild losses, as traders awaited more clarity on the Fed's future rate cuts, which so far do not seem imminent.
GBPUSD retreats, USDJPY stays weak
GBPUSD surged to a seven-week high, benefiting from a weaker U.S. Dollar, while USDJPY stalled after a three-day winning streak. The Yen pair remained under pressure early Thursday, even as GBPUSD eased on mixed UK data and market consolidation following a risk-on day. The Yen’s traditional safe-haven appeal also kept USD/JPY under pressure.
AUDUSD and NZDUSD both pulled back from their multi-week highs early Thursday as market sentiment soured and the U.S. Dollar made a recovery. Meanwhile, USDCAD dropped sharply following the Bank of Canada’s hawkish hold and a corrective bounce in crude oil, Canada’s key export. However, like AUDUSD and NZDUSD, USDCAD also bounced off its 11-week low.
Be it a draw in the U.S. weekly crude oil inventories or a downbeat U.S. Dollar, not to forget mixed geopolitical news, the WTI crude oil had it all to bounce off a two-week low and snap a two-day losing streak. On the same line, Wall Street began Thursday’s trading on a mixed note before then posted notable gains by the end of the day. That said, crude oil drops back early Thursday, while the Asia-Pacific shared trade is mixed.
Bitcoin (BTC) drops for the second straight day, while Ethereum (ETH) pulls back from a month’s high as crypto traders seek more clues to confirm previous bullish bias.
Oracle’s shares dropped more than 10% after its Q2 fiscal 2026 results, raising questions about its AI-related spending. U.S. stock indexes saw mixed reactions: The Dow Jones Industrial Average rose by 497.46 points (1.05%) to 48,057.75, while the S&P 500 rose by 46.17 points (0.67%) to 6,886.68, just below its October 29 record high. The NASDAQ rose by 77.67 points (0.33%) to 23,654.16, and the Russell 2000 surged 33.36 points (1.32%) to 2,559.60, closing at a record high. Treasury
The economic calendar is set to feature the Swiss National Bank's interest rate decision, Canada's trade numbers, and U.S. employment data.
After the FOMC rate cut, traders will be looking for signals to confirm further rate cuts for 2026, especially as U.S. employment and inflation data come into focus. A second review of the Fed's updates could help the U.S. Dollar recover its previous losses, potentially weighing on risk assets like cryptocurrencies, antipodean currencies, and some commodities.
As a result, EURUSD may see further pullbacks, while gold could edge higher amid market uncertainty. Equities, however, may continue to hold their recent gains.
May the trading luck be with you!
