Act Early or Fall Behind

December 04, 2025

Elias Haddad

Fed risk front-loading rate cuts to avert job slump. USD faces more downside.

Sweden inflation undershoots, but Riksbank firmly on hold.

Japan’s 30-year bond auction draws strong demand. USD/JPY can edge lower.

USD is mixed near yesterday’s low. Market bets on Fed front-loading rate cuts toward neutral levels (near 3%) to avert a sharper job slump risk gaining traction. That can further weigh on USD. ADP private-sector payrolls surprised to the downside at -32k (consensus: +10k) vs. 47k in October, and the three-month trend is concerning with an average of -13k jobs lost in September, October, and November.

The ISM services index overshot expectation rising 0.2pts to a nine-month high at 52.6 (consensus: 52.0) in November, indicative of solid services sector activity. However, the details support the case for additional Fed funds rate cuts:

(i) Prices Paid index dropped to a seven-month low at 65.4 vs. 70.0 in October, indicating that upside risks to inflation are fading.

(ii) New orders-to-inventories ratio dropped below 1, suggesting firms may need to scale back production as supply exceeds demand.

(iii) The employment index improved to a 6-month high at 48.9 vs. 48.2 in October but remains in contraction territory.

The November US Challenger job cut announcement data and weekly jobless claims are today’s highlights. For reference, Challenger job cuts totaled nearly 1.1 million in the year to October. That was the highest cumulative total since 2020, while hiring plans totaled 488k, the lowest cumulative total since 2011.

Meanwhile, the jobless claims data is mixed. Initial claims are low by historical standards and suggest there is no layoff spiral underway. But continuing claims are running above levels in 2023 and 2024, reflecting a lengthening in job-finding times.

SWEDEN

USD/SEK bounced off the lower-end of a two-month 9.3400-9.6000 range. Sweden inflation cools more than expected in November. The policy-relevant CPIF dropped to 2.3% y/y (consensus: 2.5% Riksbank forecast: 2.1%) vs. 3.1% in October while CPIF ex-energy fell to 2.4% y/y (consensus: 2.6%, Riksbank forecast: 2.5%) vs. 2.8% in October.

Inflation is expected to stabilize around 2%, backing the Riksbank’s forecast that the policy rate will remain at 1.75% until Q3/Q4 2026. The swaps market implies odds of a rate hike in the next twelve months which bodes well for SEK.

GBP/USD is holding on to yesterday’s solid gains and trading above its 200-day moving average (1.3326). The November DMP survey outcome is not a barrier to further Bank of England (BOE) rate cuts. Over the next year, firms expect annual wage growth to slow to 3.6% vs. 3.8% in October. 1-year ahead inflation expectations was unchanged at 3.4% for a fourth consecutive month and 3-year inflation expectations ticked-up 0.1pts to 3.0%.

The swaps curve implies 66bps of easing and the policy rate to bottom between 3.25%-3.50% over the next twelve months. We expect GBP to keep underperforming on the crosses.

JAPAN

USD/JPY dipped below technical support at 155.00. 30-year JGB yields dropped to 3.38% after testing a series high near 3.45% yesterday on solid buying interest from investors. The 30-year bond sale's average bid-to-cover ratio was 4.04 vs. 3.125 in November, the highest since May 2019.

The swaps market has now virtually fully priced in a 25bps Bank of Japan rate hike to 0.75% on December 19. Tighter monetary policy paired with Japan’s government latest fiscal stimulus package is JPY positive. Bottom line: we see room for USD/JPY to adjust lower towards the level implied by US-Japan two-year bond yield spreads around 140.00.

CHINA

USD/CNH is firmer near 7.0670, recovering from yesterday’s one-year-plus low at 7.0540. The People’s Bank of China (PBOC) is managing CNY appreciation expectations with a higher-than-forecast USD/CNY fix. USD/CNY fixing was set at 7.0733 vs. Bloomberg survey estimate of 7.0569. The gap between the fixing and forecast was the most positive (164pips) since February 2022.

In our view, a continued appreciation in China’s currency could help the country shift its growth model towards consumer spending by boosting disposable income through cheaper imports. In parallel, China can tolerate a stronger currency with limited damage to the manufacturing sector as the yuan remains deeply undervalued. Bottom line: USD/CNH downtrend is intact.

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