The Russian ruble was at 104 per USD, holding its selloff since rebounding to the one-month high of 98 touched on December 6th, but refraining from showing any reaction to the Bank of Russia’s unexpected rate hold. The Bank of Russia held its key rate at a record-high 21% despite flagging concerns of unsustainably high inflation expectations for consumers and businesses, surprising markets that were loosely split between hikes of 200bps and 300bps. The muted reaction underscored the isolation of the ruble to foreign markets as sanctions on the Moscow Exchange drove the CBR to set forex prices since June. The currency has plunged against major pairs this year as sanctions on the Russian financial sector and lower commodity demand for key trading partner China drove foreign demand for rubles to plummet. This was magnified by Moscow’s willingness to let the ruble depreciate as a weaker currency raises export revenues for energy exporters, a key revenue source for Russia’s budget.

Russian Ruble Holds Losses

The Mexican peso strengthened past 20.2 per US dollar, recovering from the monthly low of 20.37 seen on December 18, as the US dollar weakened following softer-than-expected Core PCE data. This prompted hopes of disinflation, bolstering expectations for additional rate cuts by the Federal Reserve, further supported by positive US GDP and jobless claims data. Meanwhile, the Bank of Mexico cut interest rates by 25 basis points to 10%, aligning with investor expectations. This rate reduction comes amid cooling inflation in Mexico, with Banxico projecting further easing in the coming year amid  forecasts of inflation cooling to 4.6% by year-end, though it does not anticipate reaching its 3% target until mid-2026.

Mexican Peso Rebounds

The dollar index eased to 108 on Friday, pulling back from the two-year high of 108.5 from the two prior sessions as favorable inflation signals supported a backdrop for more interest rate cuts by the Federal Reserve. Core PCE prices, which are the Fed’s preferred gauge of underlying inflation, rose by 0.1% from the previous month in November, below market expectations and the least since May. This raised hopes of disinflation after concerns of stubborn price growth drove the FOMC to signal fewer rate cuts than expected next year in its latest Summary of Economic Projections. The hawkish projections were backed by yesterday’s releases pointing to an upward revision to the US GDP, an annualized 3.1% growth in the third quarter, and lower jobless claims. In turn, the dollar index was further supported by dovish signals from the BoE and the BoJ, and rate cuts from the SNB, BoC, and Swedish Riksbank.

DXY Eases from 2-Year High

The Brazilian real strengthened past 6.1 per USD, rebounding from a record low of 6.29 on December 18, driven by aggressive foreign exchange interventions by the central bank to stabilize the currency amid fiscal uncertainties. Over the past week, the BCB injected over $27.75 billion into the market through spot auctions and line operations (with repurchase agreements), significantly increasing dollar liquidity and alleviating pressure on the real. Market sentiment also improved following progress on the government’s fiscal package in Congress, including Senate approval of spending cuts, reduced eligibility for programs aimed to promote income distribution by providing financial benefits, and limits on personnel expenses. While these measures provided relief to fiscal concerns and supported the real’s recovery, the outlook remains clouded by lingering uncertainty over the government’s ability to achieve sustainable fiscal consolidation.

Brazilian Real Rebounds as Central Bank Intervenes

EURUSD decreased to a 4-week low of 1.03. Over the past 4 weeks, Euro US Dollar lost 1.16%, and in the last 12 months, it decreased 6%.

Euro Hits 4-week Low

The Australian dollar dropped toward $0.62 on Friday, reaching its lowest level since October 2022, as investors brought forward expectations for the first Reserve Bank of Australia rate cut amid signs of slowing economic activity. Markets are now betting that the RBA could begin cutting its 4.35% cash rate as early as February, with the upcoming meeting minutes expected to offer further insights. Meanwhile, data showed private sector credit in Australia rose 0.5% month-on-month in November, marking the fastest monthly growth in four months. Externally, the Aussie remained under pressure from a strong US dollar after the Federal Reserve delivered a widely anticipated 25 basis point rate cut on Wednesday, while signaling fewer rate reductions in 2025. Additionally, China’s central bank held key lending rates steady, offering no new economic stimulus for Australia’s largest trading partner.

Aussie Dollar Falls to Over 2-Year Low

The New Zealand dollar remained at over two-year low, trading around $0.562 on Friday and on track for its third consecutive weekly loss. The currency was weighed down by weaker-than-expected third-quarter GDP data, which fueled expectations of more aggressive monetary policy easing by the Reserve Bank of New Zealand. Markets have fully priced in an outsized 50 bps rate cut at the central bank’s February meeting. In other economic news, New Zealand's trade deficit narrowed in November, driven by a rise in exports while imports dropped. Externally, the Kiwi remains under pressure from a strong US dollar, following the Federal Reserve's hawkish outlook. So far this week, the New Zealand dollar has declined 2.3%, marking its worst weekly performance in over two months.

New Zealand Dollar Languishes at Over 2-Year Low

The South Korean won fell to around 1,450 per dollar, returning to its lowest level in nearly 16 years after a brief rise in the previous session. The decline was driven by the ongoing dollar strength following a hawkish outlook from the US Federal Reserve. This was compounded by a dovish Bank of Korea and domestic political turmoil. The BOK's latest meeting minutes underscored the need for proactive monetary easing amid an economic slowdown, raising expectations of a 25bps rate cut in January and further reductions in 2025, possibly lowering the rate to 2%. Traders are also monitoring the country’s deepening political strife, with the acting leader vetoing opposition bills amid disputes over Prime Minister Han's authority. Meanwhile, South Korea’s financial authorities plan to ease foreign exchange regulations to improve liquidity in the currency market. In economic news, producer prices rose 1.4% year-on-year in November, up from 1% in October, marking the highest gain since August.

South Korean Won Tumbles

The offshore yuan stabilized at 7.30 per dollar after the People's Bank of China held its key lending rates steady for the second consecutive month at December's fixing, in line with market expectations. The one-year loan prime rate (LPR), serving as the benchmark for most corporate and household loans, remained at 3.1%, while the five-year rate, a reference for property mortgages, stayed unchanged at 3.6%. Both rates are at historic lows following reductions in October and July. In early December, Chinese leaders signaled a shift in monetary policy to a "moderately loose" stance in the upcoming year, departing from the current "prudent" approach to address rising economic challenges. On the economic front, November retail sales growth missed expectations, while new home prices dropped for the 17th consecutive month. However, industrial production exceeded forecasts, offering a glimmer of resilience in manufacturing.

Offshore Yuan Stabilizes at PBOC Stands Pat

The Japanese yen strengthened past 157 per dollar on Friday, following data showing Japan’s headline inflation rate rose to a three-month high of 2.9% in November, up from 2.3% in October. The core inflation rate also jumped to 2.7%, surpassing market expectations of 2.6%. These figures support a more hawkish outlook for the Bank of Japan’s monetary policy. However, the central bank opted to keep rates unchanged at its December meeting, citing the need to assess wage trends, global economic uncertainties, and the policies of the incoming US administration. The BOJ’s decision triggered a sharp yen depreciation, which plunged nearly 2% to a five-month low on Thursday. The yen also faced pressure from a strong US dollar after the Federal Reserve delivered a widely anticipated 25 basis point rate cut on Wednesday, while signaling fewer rate cuts in 2025.

Japanese Yen Rises on Strong Inflation Data

The dollar index remained around 108.4 on Friday, staying at its highest level since November 2022 as investors awaited the latest PCE price index report, the Federal Reserve’s preferred measure of inflation. Fed Chair Jerome Powell noted this week that the PCE is likely to show the 12-month inflation rate remains above the central bank’s 2% target. His remarks followed the Fed’s widely anticipated quarter-point rate cut, although the central bank signaled fewer cuts in 2025 due to persistent inflation. The Fed now projects only two more rate reductions next year, a significant shift from the four cuts previously expected in its September forecast. Additionally, the Fed revised its 2025 economic outlook, raising GDP growth and inflation projections while lowering its unemployment rate forecast. As a result, markets are now pricing in a 90% probability that the Fed will keep rates unchanged in January.

Dollar Holds at 2-Year High Ahead of PCE Inflation Data

GBPUSD decreased to a 4-week low of 1.25. Over the past 4 weeks, British Pound US Dollar lost 0.7%, and in the last 12 months, it decreased 1.51%.

British Pound Hits 4-week Low

The Mexican peso remained above 20.3 per US dollar, near the monthly low of 20.37 seen on December 18, after the Bank of Mexico cut rates to 10% and signaled further easing, potentially with larger cuts, depending on the pace of disinflation and economic conditions. Banxico cited a decline in headline inflation to 4.55% in November, core inflation easing to 3.58%, and ongoing economic weakness despite Q3's rebound, with growth expected to soften and employment decelerating. Meanwhile, US dollar strength pressured the peso, driven by the Federal Reserve's 25 basis point rate cut and its unexpectedly hawkish guidance for 2025, which now anticipates only two rate cuts instead of the four previously projected.

Mexican Peso Near Monthly Low

The Canadian dollar strengthened past 1.44 per USD, halting the sharp selloff that had driven it to its lowest since March 2020 of 1.445, as the U.S. dollar paused following a strong rally, with profit-taking and a technical correction taking place. Despite the Federal Reserve’s hawkish stance, signaling fewer rate cuts for 2025, and stronger-than-expected U.S. economic growth, the CAD gained support from rising crude oil prices and some market stabilization. However, the outlook remains bearish, as expectations mount that the Bank of Canada may continue easing rates to combat weak growth, further widening the interest rate differential with the U.S. and reducing the CAD’s appeal. Additionally, the Canadian government revised GDP growth forecasts downwards, lowering 2025 to 1.7% from 1.9% and 2026 to 2.1% from 2.2%. The resignation of Finance Minister Chrystia Freeland over U.S. tariff strategy has also added uncertainty.

Canadian Dollar Halts Sharp Selloff

The South African rand traded near 18.4 per USD, its weakest level since early August, as the US Federal Reserve's hawkish outlook on interest rates strengthened the dollar, increasing pressure on emerging economies like South Africa. The prospect of higher-than-expected interest rates diminishes the appeal of riskier emerging market investments, while the dollar's strength could curb capital inflows and pose a risk to economic stability. Locally, positive inflation developments in South Africa point to further interest rate cuts in 2025, but the SARB is unlikely to cut rates by more than 25 basis points at a time. Consumer price inflation edged up to 2.9% in November, from 2.8% in October, though remaining well below the South African Reserve Bank's midpoint target of 4.5%.

South African Rand at Over 4-Month Low

The Brazilian real strengthened toward 6.16 per dollar, rebounding from a record low of 6.29 seen December 18th, driven by a combination of strong interventions by the Brazilian central bank and market optimism regarding fiscal adjustments. On December 19, the BCB sold $5 billion in a spot auction, marking its sixth such operation in the past week, aimed at curbing the real’s plunge and restoring confidence in the local currency. The market remains focused on Brazil’s fiscal package, with investors awaiting clarity on the government’s commitment to spending cuts. Despite concerns about the fiscal outlook, the BCB's interventions have provided short-term relief, contributing to the real’s appreciation. While there is persistent concern over Brazil’s fiscal health, the recent intervention has provided some relief, easing pressure on the real.

Brazilian Real Gains on Central Bank Interventions

The British pound slid to below the $1.26 mark, remaining close to the nearly one-month low from the previous session and missing the slight bounce from other G10 currencies due to dovish signals from the Bank of England in its latest decision. The BoE held its Bank Rate unchanged at 4.75%, as expected, but three members from the Monetary Policy Committee voted for a rate cut, instead of expectations of more consensus over a hold. Favor towards looser monetary policy was consistent with the Bank’s statement that economic activity indicators have declined in recent months, driving the MPC to expect the Q4 GDP to miss its previous forecasts. This is despite stubborn inflation in the UK economy, with services price growth remaining unchanged at 5% per the latest data. Conversely, the Federal Reserve cut its rate this week but delivered hawkish signals by projecting fewer rate cuts than expected for next year, pressuring G10 currencies.

British Pound Slides After BoE

The Japanese yen depreciated past 156 per dollar on Thursday, sliding toward its weakest levels in four months after the Bank of Japan left its policy rate unchanged at 0.25%, as widely expected. BOJ Governor Kazuo Ueda said in the post-meeting press conference that the decision to hold rates was based on wage trends, uncertainties of overseas economies and the next US administration's policies. Markets are now speculating that the BOJ could hold off on a rate hike again in January as it does not give the central bank enough time to assess wage trends and Trump’s policies. Additionally, the yen faced pressure from a strengthening US dollar, after the US Federal Reserve delivered a widely anticipated 25 basis point rate cut on Wednesday but signaled fewer rate reductions in 2025. The Fed now projects only two rate cuts next year, down from the four reductions forecast in September.

Japanese Yen Weakens as BOJ Stands Pat

The Indian rupee weakened past 85 per USD, hitting a fresh all-time low amid a hawkish outlook from the Federal Reserve. The Fed delivered a widely expected interest rate cut but signaled a slower pace of easing in the coming year, leading traders to scale back expectations for further rate cuts next year. Adding to the bearish sentiment, China’s announcement of large-scale economic policy changes to boost growth and equity markets next year has led investors to pivot out of India and into China, aligning with exchange data showing capital outflows from rupee-denominated markets. Domestically, the rupee remains under pressure after the country posted a record-high trade deficit in November, highlighting sluggish economic growth and weak domestic demand. Moreover, the Reserve Bank of India has recently revised its GDP growth forecast for the current financial year down to 6.6% from 7.2%, amid growing calls for the central bank to start its rate-cutting cycle.

Indian Rupee Hits Fresh Record Low

The Japanese yen fell past 155 per dollar on Thursday, reaching a one-month low after the Bank of Japan left its policy rate unchanged at 0.25%, as widely expected. Investors are now focused on BOJ Governor Kazuo Ueda’s post-meeting press conference for insights into the timing of future rate hikes. Prior to the decision, speculation had been growing that the BOJ might hold off on tightening its policy, with policymakers opting to take more time to assess the economic data. Additionally, the yen faced pressure from a strengthening US dollar, after the US Federal Reserve delivered a widely anticipated 25 basis point rate cut on Wednesday but signaled fewer rate reductions in 2025. The Fed now projects only two rate cuts next year, down from the four reductions forecast in September.

Japanese Yen Weakens as BOJ Holds Rates Steady

The New Zealand dollar held its recent decline to around $0.562 on Thursday, trading at its lowest level since October 2022 as investors reacted to data showing the domestic economy had slipped back into recession. New Zealand's GDP contracted by 1% in the third quarter, following a revised 1.1% fall in the previous quarter. On an annual basis, the economy shrank by 1.5%, compared to a 0.5% contraction in the prior period. The figures came in much worse than analysts expected, including the Reserve Bank of New Zealand, reinforcing expectations for more aggressive monetary policy easing. On Wednesday, the kiwi plunged 2.3% as the US dollar strengthened after the Federal Reserve delivered a rate cut as anticipated but indicated a slower pace of rate reductions in the coming year.

NZ Dollar Holds Losses Amid Weak GDP Data

The offshore yuan rose to around 7.31 per dollar, rebounding from a thirteen-month low reached in the previous session, supported by a strong intervention from the People’s Bank of China. On Thursday, the central bank set the currency’s daily reference rate significantly stronger than market expectations, marking the widest gap since July. This move underscored China’s commitment to mitigating depreciation pressures on its currency, with the the central bank consistently delivering stronger-than-expected fixings, a strategy employed since Donald Trump’s election victory. Meanwhile, investors continued to evaluate China’s economic outlook following Beijing’s pledge for additional policy support in the upcoming year, including more rate cuts, further reductions in banks' reserve requirements, and stronger fiscal measures. Attention now turns to the PBOC’s upcoming loan prime rate decisions later this week for further insights into its policy direction.

Offshore Yuan Rebounds on PBOC Strong Support

The South Korean won extended its decline to around 1,450 per dollar, hitting its lowest level in almost sixteen years, pressured by a strengthening US dollar following the Federal Reserve's cautious stance on further interest rate cuts. The Fed reduced rates on Wednesday as expected but projected only two rate cuts next year, down from the four anticipated in its September forecast. The Fed’s hawkish stance amplified the impact of a dovish Bank of Korea and domestic political turmoil. The BOK's latest meeting minutes highlighted the need for proactive monetary easing amid an economic slowdown, raising expectations of a 25bps cut in January and further reductions in 2025, possibly lowering the rate to 2%. Meanwhile, as the Constitutional Court deliberates on President Yoon’s impeachment, the government has introduced measures to boost corporate investment to mitigate the economic effects of the political crisis.

South Korean Won Slips Further to 16-Year Low

USDJPY increased to a 4-week high of 155.17. Over the past 4 weeks, US Dollar Japanese Yen lost 0.09%, and in the last 12 months, it increased 8.06%.

Japanese Yen Hits 4-week Low

Bitcoin fell below the $100,000 mark on Thursday, retreating sharply from recent all-time highs following signals from the US Federal Reserve of fewer interest rate cuts in 2025. The Fed delivered a widely anticipated quarter-point rate cut on Wednesday but revised its outlook, forecasting only two more rate reductions next year, down significantly from the four cuts projected in September. The decline in Bitcoin prices was further compounded by comments from Fed Chair Jerome Powell during his post-meeting press conference. When asked about former President Trump's proposal for a potential Bitcoin reserve, Powell clarified that the central bank is not allowed to hold digital currencies under current regulations. He emphasized that any change would need to come from Congress, as the Fed is not seeking to alter the law.

Bitcoin Drops Below $100,000 Amid Hawkish Fed Stance

The Australian dollar remained below $0.625 on Thursday after a nearly 2% drop in the previous session, reaching its weakest point since October 2022. The decline followed the US Federal Reserve’s widely expected 25 basis point rate cut on Wednesday, coupled with the central bank’s forecast of only two additional rate reductions next year, a sharp drop from the four cuts projected in September. The Aussie also faced added pressure from disappointing Chinese economic data and concerns over potential higher US tariffs under the incoming Trump administration, given Australia’s significant trade ties with China. Domestically, traders brought forward expectations for the first Reserve Bank of Australia rate cut, as signs of slowing economic activity continue to mount.

Aussie Dollar Languishes at Over 2-Year Low

The dollar index remained around 108 on Thursday, holding onto gains after surging more than 1% in the previous session to reach its highest level since November 2022. This rally followed the Federal Reserve’s widely anticipated 25 basis point rate cut on Wednesday, although the central bank signaled fewer rate reductions in 2025 than initially expected. The Fed now forecasts just two additional rate cuts next year, a sharp decrease from the four reductions projected in its September outlook. In addition, the Fed revised its economic projections for 2025, increasing GDP growth and inflation forecasts while lowering its unemployment rate outlook. As a result, markets are now pricing in a 94% probability that the Fed will keep rates unchanged in January. Meanwhile, investors are also awaiting monetary policy decisions from the Bank of Japan and the Bank of England.

Dollar Hovers 2-Year Highs Amid Hawkish Fed Signals

USDKRW decreased to a 11-week low of 1303.00. Over the past 4 weeks, US Dollar South Korean Won gained 4.92%, and in the last 12 months, it increased 12.44%.

South Korean Won Hits 11-week High

The Canadian dollar weakened past 1.44 per USD in December, its lowest since March 2020, as the US dollar strengthened after the Federal Reserve's expected 25bps rate cut and a more hawkish 2025 outlook, projecting only two cuts totaling 50bps, down from 100bps. Domestically, the Canadian government revised GDP growth forecasts, lowering 2025 to 1.7% from 1.9% and 2026 to 2.1% from 2.2%. The Bank of Canada’s 50bps rate cut, amid rising unemployment and sluggish growth, widened the interest rate differential with the US, reducing the CAD’s appeal. Additionally, Finance Minister Chrystia Freeland’s resignation over disagreements on handling US tariffs added uncertainty, given her key role in trade strategy and fiscal stability. Meanwhile, persistent inflation, with the trimmed-mean core rate holding at 2.7% instead of the expected 2.5%, limits the potential for further rate cuts.

Canadian Dollar Extends Decline After Hawkish US Fed

The Brazilian real plunged to a record low of 6.26 per dollar in December, primarily due to mounting fiscal concerns and weak economic fundamentals. Investors are increasingly skeptical about the government's ability to manage the country’s growing fiscal deficit, which has reached 9.5% of GDP, up from 4.6% when President Lula took office. Despite recent progress in passing fiscal reform proposals, such as limiting public sector spending, the measures have been watered down, raising doubts about their effectiveness. Further complicating matters, the Treasury has been forced to cancel bond auctions and buy back assets to manage the debt load, signaling a lack of investor confidence. Additionally, the U.S. the Federal Reserve's hawkish stance on interest rates has driven demand for the dollar, further pressuring the real.

Brazilian Real Continues Decline, Reaching New Record Lows

The New Zealand dollar fell below 0.569 on Wednesday, hitting a two-year low, as the US dollar strengthened following the Federal Reserve's hawkish outlook. While the Fed delivered the expected 25bps rate cut, its projection for just a 50bps reduction in 2025, instead of the previously anticipated full percentage point, raised concerns about a slower pace of easing. Additionally, weak Chinese economic data, New Zealand's key trading partner, further pressured the Kiwi dollar, with disappointing retail sales fueling fears of a deeper slowdown in China. Domestically, expectations of a 0.4% contraction in third-quarter GDP added to the bearish sentiment surrounding the NZD.

Hits 2-Year Low on Hawkish Fed and Weak China Data

The South Korean won extended its plunge to 1,450 per USD as hawkish projections from the Fed magnified the impact of a dovish Bank of Korea and domestic political turmoil. The Fed projected only two rate cuts for next year in its latest round of projections, half of previous expectations of a full percentage point. Domestically, the minutes from the BoK’s latest meeting highlighted policymakers’ arguments for looser monetary policy. The central bank forecasts South Korea's economic growth to slow from 2.2% in 2024 to 1.9% in 2025 and 1.8% in 2026. Consequently, the central bank is expected to cut rates by 25bps in January, with further reductions in 2025, potentially lowering the rate to 2% amid weakening sentiment and political uncertainty. Meanwhile, as the Constitutional Court continues to deliberate on President Yoon’s impeachment, the government unveiled measures to stimulate corporate investment, aiming to mitigate the economic effects of the political crisis. political crisis.

South Korean Won Tumbles to 16-Year Low

DXY increased to a 25-month high of 108.11. Over the past 4 weeks, Dollar Index gained 1.81%, and in the last 12 months, it increased 5.73%.

Dollar Index Hits 25-month High

The Australian dollar dropped toward $0.624 on Wednesday, its lowest level in over two years, following the US Federal Reserve's "hawkish cut" which strengthened the US dollar. While the Fed delivered a widely expected 25bps rate reduction, it signaled only two cuts in 2025 totaling 50bps, a tighter monetary policy stance compared to earlier projections of 100bps cuts. Further pressure came from weak Chinese economic data and the risk of renewed US tariffs under a potential Trump administration, given Australia’s heavy trade ties with China. Domestically, concerns over slowing economic activity persist, with Australian consumer confidence declining and markets advancing expectations for the Reserve Bank of Australia's first rate cut amid growing signs of economic weakness.

Australian Dollar Plummets to Over 2-Year Low

The offshore yuan hit 7.32 per dollar, the lowest since October 2023 amind general dollar strenght after Fed delivered more hawkish stance than expected. Fed delivered a 25bps rate cuts as expected but signalled only two rate cuts in 2025. Also, for the upcoming year, the Fed raised its growth forecasts, lowered its unemployment projections, and significantly increased its inflation estimates. At the same time, traders await the People’s Bank of China’s loan prime rate decisions later this week for clues on future policy moves. The central bank pledged to stabilize the yuan and manage exchange rate expectations amid economic challenges and looming US trade tensions. Earlier this week, data showed retail sales grew slower-than-expected in November, and new home prices droped for the 17th consecutive month.

Yuan Hits 13-month Low

The US Dollar exchange rate rose above 0.9 Swiss Franc in the foreign exchange interbank market.

Swiss Franc traded above 0.9

The euro fell to $1.04, nearing its lowest level since November 2022, pressured by a general dollar strength after the Fed delivered a hawkish view for 2025. The Fed lowered the fed funds rate by 25bps as expected, but signalled only 50bps of rate cuts for 2025, half the reduction projected in September. Meanwhile, the ECB already cut the key deposit rate four times this year and maintained a cautious stance on further easing. Still, many analysts believe the ECB may need to accelerate policy loosening to support the fragile Eurozone economy. Flash PMIs pointed to another, albeit slower, contraction in private sector activity with Germany and France continuing to underperform. Also, annual inflation rate rose less-than-expected to 2.2% from initial estimates of 2.3%. Adding to the euro's woes is political uncertainty. In Germany, the Chancellor lost a confidence vote in Parliament as expected and in France, the new government faces big challenges, including passing the 2025 budget.

Euro Falls Sharply

The British pound fell to $1.26, testing its lowest in nearly one month and tracking the pressure in other G10 currencies as hawkish signals from the Federal Reserve triggered a sharp rise for the US dollar. The Fed lowered its funds rate by 25bps, as expected, but projected only two rate cuts next year to underscore growing inflation concerns by FOMC members. In turn, the Bank of England is expected to hold its Bank Rate unchanged and continue heeding to elevated inflation domestically. Annual inflation rate in the UK rose for a second month to 2.6% in November as expected. The services inflation steadied at 5%, below forecasts of 5.1% but above the BoE's estimate of 4.9%. Early in the week, UK wage growth surpassed expectations

British Pound Weakens After Fed

The Japanese yen fell further to around 154.6 per dollar on Wednesday, hitting more than 1 month low after the Fed delivered more hawkish stance than expected. Fed delivered a 25bps rate cuts as expected but signalled only two rate cuts in 2025. Also, for the upcoming year, the Fed raised its growth forecasts, lowered its unemployment projections, and significantly increased its inflation estimates. Locally, speculation is growing that the Bank of Japan may hold off on an interest rate hike when it announces its decision on Thursday, following reports that it sees "little cost" in delaying further tightening. Policymakers appear to prefer waiting for more data to ensure the economy is performing as expected before making additional policy changes. On the data front, Japanese export growth accelerated to a three-month high in November, while imports unexpectedly declined.

JPY Falls After Fed

USDCNY increased to a 13-month high of 7.32. Over the past 4 weeks, US Dollar Chinese Yuan gained 1.09%, and in the last 12 months, it increased 2.67%.

Chinese Yuan Hits 13-month Low

USDKRW increased to a near 16-year high of 1446.00. Over the past 4 weeks, US Dollar South Korean Won gained 3.74%, and in the last 12 months, it increased 11.17%.

South Korean Won Hits Near 16-year Low

The dollar index soared about 0.6% to 107.6 on Wednesday, reaching the highest level since November 2022, after the Federal Reserve cut the fed funds rate by 25bps as expected, but delivered a hawkish view for 2025. Policymakers now anticipate just a 50bps reduction next year, compared to a full percentage point expected last quarter.

Dollar Hits More Than 2-Year High After Fed

USDKRW increased to a 25-month high of 1445.00. Over the past 4 weeks, US Dollar South Korean Won gained 3.62%, and in the last 12 months, it increased 11.05%.

South Korean Won Hits 25-month Low

The Brazilian real depreciated to a record low of 6.16 per dollar in December, reflecting deepening concerns over the government’s fiscal credibility and worsening economic fundamentals. Congress recently approved diluted fiscal measures, imposing restrictions on personnel and tax incentive growth while delaying critical reforms, such as military pension adjustments. This has amplified doubts about the administration’s ability to address Brazil’s widening fiscal deficit, which now stands at 9.5% of GDP, up from 4.6% when President Luiz Inácio Lula da Silva took office in January 2023. Persistent inflation risks and elevated interest rates continue to strain public finances, further eroding investor confidence. While the National Treasury has intervened through bond auctions to curb volatility, sentiment remains fragile due to the lack of decisive fiscal action. The real has depreciated roughly 20% this year, underscoring mounting sovereign risk and fiscal instability.

Brazilian Real Depreciates to Record Low

The Indian rupee weakened past 84.9 per USD in December, a new record low, pressured by continuous evidence of capital outflows and expectations of an incoming rate cut by the RBI. Domestic inflation fell to 5.5% in November, as expected, to return within the central-bank’s tolerance range, aligning with the scenario that allows the RBI to deliver its first rate cut by the March quarter of 2025. Calls for rate cuts aligned with recent data underscoring a sharp slowdown in the country’s economic growth, with the GDP rising 5.4% annually in the September quarter. Lower growth and lack of net domestic demand was underscored by the record-high trade deficit posted in November. Also pressuring the rupee, China announced large-scale policy changes to support the economy and lift equity markets next year, driving investors to pivot out of India and into China, and aligning with exchange data pointing to fresh outflows from rupee-denominated Indian capital markets.

Indian Rupee Weakens to New Record Low

The sterling edged down slightly to below $1.27, as traders digest key economic data and await the Bank of England's monetary policy decision on Thursday. Annual inflation rate in the UK rose for a second month to 2.6% in November as expected. The services inflation steadied at 5%, below forecasts of 5.1% but above the BoE's estimate of 4.9%. Early in the week, UK wage growth surpassed expectations. The Bank of England is expected to leave the benchmark interest rate steady and continue to maintain a cautious approach to interest rate cuts. Investors are anticipating two quarter-point rate cuts and estimate a roughly 40% probability of a third reduction by the end of 2025.

British Pound Edges Down Slightly, BoE Awaited

The New Zealand dollar dropped to around $0.574 on Wednesday, hovering at its lowest level in over two years as investors remained cautious ahead of the US Federal Reserve’s policy decision. While the market widely expects a rate cut, investors are fretting about the pace of easing next year. Additionally, renewed concerns over China’s economy, spurred by weak economic data, weighed on the Kiwi dollar due to New Zealand's reliance on China as a key export market. Domestically, attention is focused on the third-quarter GDP data due on Thursday, which is likely to show the New Zealand's economy contracted again. Meanwhile, a survey from Westpac showed that consumer confidence rose in the fourth quarter (97.5 vs 90.8 in Q3), the most upbeat in three years, although it remained below long-run averages.

New Zealand Dollar Falls to Over 2-Year Low

The Australian dollar dropped below $0.633 on Wednesday, marking its lowest point in over a year as investors braced for the US Federal Reserve's upcoming policy decision. The Fed is widely expected to implement a quarter-point rate cut later today, though it may signal fewer rate reductions next year than previously anticipated due to persistent inflation. Domestically, attention is focused on the release of minutes from the Reserve Bank of Australia's last meeting, when it kept rates unchanged at 4.35%. Market expectations for the first RBA rate cut have since been brought forward, as signs of slowing economic activity emerge. A private survey earlier this week revealed a drop in Australian consumer confidence for December, as sentiment turned more pessimistic about the economic outlook.

Australian Dollar Sinks to Over 1-Year Low

The South Korean won stabilized around 1,435 per dollar, as traders braced for the latest monetary policy decision from the US Federal Reserve. The Fed is widely expected to cut rates by 25 basis points, but may signal fewer reductions for 2025 amid inflation concerns. Domestically, the Bank of Korea's latest meeting minutes highlighted the need for proactive monetary easing amid an economic slowdown, citing their recent back-to-back rate cut decision. The central bank forecasts South Korea's economic growth to slow from 2.2% in 2024 to 1.9% in 2025 and 1.8% in 2026. Consequently, the central bank is expected to cut rates by 25bps in January, with further reductions in 2025, potentially lowering the rate to 2% amid weakening sentiment and political uncertainty. Meanwhile, as the Constitutional Court continues to deliberate on President Yoon’s impeachment, the government unveiled measures to stimulate corporate investment, aiming to mitigate the economic effects of the political crisis.

South Korean Won Stabilizes

The Japanese yen slipped to around 153.7 per dollar on Wednesday, reversing some of the gains from the previous session as investors braced for the US Federal Reserve's latest policy decision. The Fed is widely expected to implement a quarter-point rate cut later today, but may signal fewer reductions next year than previously indicated due to persistent inflation. In Japan, speculation is growing that the Bank of Japan may hold off on an interest rate hike when it announces its decision on Thursday, following reports that it sees "little cost" in delaying further tightening. Policymakers appear to prefer waiting for more data to ensure the economy is performing as expected before making additional policy changes. On the data front, Japanese export growth accelerated to a three-month high in November, while imports unexpectedly declined.

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