Forex

Dollar Direction:

The U.S. Dollar Index has slipped below the psychological 100 mark to around 99.17, extending its 2025 decline to nearly 7% year-to-date—the greenback's weakest run since 2020. Traders have ratcheted up December rate-cut bets to roughly 70% after soft labor-market data and dovish Fed rhetoric, with New York Fed President Williams explicitly noting policymakers could cut "in the near term." The 10-year Treasury yield has retreated below 4.1%, further sapping dollar appeal as capital flows recalibrate toward a less restrictive Fed stance.

Eurozone Resilience:

The ECB held its main refinancing rate steady at 2.15% and deposit rate at 2.0% for a second consecutive meeting, signaling comfort with its current policy stance as headline inflation hovers at 2.1%. That stability, combined with narrowing rate differentials as the Fed pivots toward easing, has allowed EUR/USD to consolidate near 1.1620—roughly 5% higher year-to-date. Goldman Sachs now targets 1.20 over twelve months, while UBS sees potential for 1.21 by year-end, citing fading U.S. exceptionalism and German fiscal support as tailwinds.

Sterling Stands Its Ground:

The Bank of England held rates at 4.0% at its November meeting, but a razor-thin 5–4 vote—with four members pushing for a cut—signals easing is imminent. Markets now price a roughly 90% probability of a 25 bp reduction at the December 18 meeting. Cable has carved out a 1.30–1.33 range, with the pair currently trading around 1.3240. UK inflation eased to 3.6% in October, still nearly double the BoE's target, but the trajectory has momentum models eyeing dips toward 1.30 as buying opportunities with a 1.35–1.37 year-end target if disinflation continues.

Last updated: December 01, 2025