US

USD and Treasury yields are consolidating after yesterday’s Fed-triggered drop. The path of least resistance for USD remains down as the currency converges towards the level implied by US-G6 rate differentials. US weekly jobless claims and trade data are due today (both at 1:30pm London, 8:30am New York).

FOMC delivered a neutral cut. A was virtually fully priced in, the FOMC cut the target range for the Fed funds rate by 25bps to 3.50-3.75%. The press release stressed again that inflation “remains somewhat elevated,” and “downside risks to employment rose in recent months.”

The FOMC vote showed more dissenters than at the October meeting. Fed Governor Stephen Miran voted again for a 50bps cut while two dissenters (Kansas City Fed president Jeff Schmid and Chicago Fed president Austan Goolsbee) favored a hold vs. only Schmid in October. That was in line with consensus.

FOMC Dot Plots were unchanged. The FOMC median rate forecast still implies one cut for both 2026 and 2027, no change in 2028 and the same longer-term rate of 3.0%. However, the nudge down to the FOMC’s 2026 inflation projection lowers the bar for more than one cut next year. 2026 PCE inflation is forecast at 2.4% (vs. 2.6% previously) while core PCE inflation is forecast at 2.5% (vs. 2.6% previously).

Fed Chair Jay Powell struck a hawkish tone but left a small dovish wrinkle. Powell stressed that “the fed-funds rate is now within a broad range of estimates of its neutral value, and we are well-positioned to wait to see how the economy evolves.”

Nonetheless, Powell warned that payroll job gains since April may be overstated by about 60k. So rather than averaging 40k job gains a month, the economy has actually lost -20k jobs per month since April. Worsening labor demand supports Fed funds futures pricing 50bps of cuts in the coming year.

The Fed announced plans to start buying short-term T-bills given recent upward pressure on funding rates. Purchases will start tomorrow and amount to $40bn in the first month and “may remain elevated for a few months to alleviate expected near-term pressures in money markets.” This is a liquidity management measure, not a change in the underlying stance of monetary policy.

SWITZERLAND

CHF outperforms. The Swiss National Bank (SNB) left the policy rate on hold at 0.00% (widely expected) and signaled the bar is high for negative rates. The statement notes that “uncertainty has decreased somewhat compared to the last monetary policy assessment” and “the economic outlook for Switzerland has improved slightly.”

The swaps curve adjusted higher to almost fully rule out odds of 25bps rate cut to -0.25%. USD/CHF is likely to stay within its multi-month 0.7900-0.8100 range in the near term.

AUSTRALIA

AUD underperformed across the board. Australia’s November labor force report was unexpectedly weak and curtails RBA rate hike expectations. The economy lost -21.3k jobs (consensus: +20.0k) vs 41.1k in October. Full-time employment dropped -56.5k, reversing October’s gains, while part-time employment increased 35.2k after falling -12.5k in October. The unemployment rate was unchanged at 4.3% for a second consecutive month and is tracking below the RBA’s year-end projection of 4.4%.

However, the drop in the participation rate, no change in hours worked, and the sharp rise in the underemployment rate (workers with a job but aren’t working as much as they want) signal slack is building beneath the surface. The upshot is that leading indicators point to stable labor market conditions. The NAB business employment index ticked up in November and remains within the same narrow range in place since 2024.

Bottom line: the RBA is done easing but rate hike bets have run a little too far. RBA cash rate futures imply 40bps of rate increase over the next twelve months. There is room for a modest repricing lower in the futures curve which is a headwind for AUD. In the short term, AUD/USD will struggle to sustain a break above 0.6700.

PHILIPPINES

PHP is up against all currencies. Philippines central bank (BSP) delivered a hawkish cut. BSP cut rates 25bps to 4.50% (widely expected) and signal it’s done easing. The statement notes “the Monetary Board sees the monetary policy easing cycle nearing its end. Any additional easing will likely be limited and will be guided by incoming data.” Governor Eli Remolona added the easing cycle “may have ended already. This may be the last cut.”

BRAZIL

Brazil’s central bank (BCB) delivered a hawkish hold. BCB kept rates at 15.00% (widely expected) for a fourth consecutive meeting and stuck to its rate hike bias. BCB reiterated it expects to keep “the interest rate at its current level for a very prolonged period” and “it will not hesitate to resume the rate hiking cycle if appropriate.” Brazil’s high real positive interest rates (currently around 10%) supports the uptrend in BRL.

TURKIYE

Türkiye’s central bank (CBTR) is expected to slash rates 100bps to 38.50% (11:00am London, 6:00am New York). CBRT has cut the policy rate by a total of 650bps basis points in July, September and October. The disinflation process is ongoing and argues for a less restrictive policy stance. Core CPI inflation slowed to a four-year low at 31.65% y/y in November vs. 32.05% in October.

PERU

Peru’s central bank (BCRP) is expected to keep rates on hold at 4.25% (11:00pm London, 6:00pm New York). However, it’s a close call: 5 of the 12 analysts polled by Bloomberg pencil in a cut while the remaining 7 see a hold. We lean towards a hawkish cut in part because the BCRP assesses the current interest rate level to be “very close to the level estimated as neutral”. Peru’s positive real interest rates, favorable balance of payments backdrop, and firm copper prices bode well for PEN.