• Fed poised to cut. SEP and Powell will steer the hawk-dove tilt.

• RBA, BOC, SNB on hold. RBA risk surprising with a hawkish hold.

• Big week for EM policy: Brazil, Peru, Türkiye, and Philippines decide.

USD traded on the defensive last week against most currencies as US economic data argued for additional Fed funds rate cuts. ADP private-sector payrolls showed job losses into November, the ISM November price indexes pointed to fading upside inflation risks, and personal consumption spending stalled in September. USD will take its cue this week from the outcome of the FOMC meeting and October JOLTS report.

Fed to Cut while Peers Hit Pause

On Wednesday, the FOMC is expected to trim the target range for the Fed funds rate by 25bps to 3.50-3.75% (95% priced in). The press release is likely to stress again that inflation “remains somewhat elevated,” and “downside risks to employment rose in recent months.”

The Fed could announce plans to start buying short-term T-bills given recent upward pressure on funding rates. This would be a liquidity management measure, not a change in the underlying stance of monetary policy. Instead, the FOMC vote split, Summary of Economic Projections (SEP) and Fed Chair Jay Powell’s press conference will steer the hawk-dove policy tilt.

The FOMC vote will show more dissenters than at the October 28-29 meeting. At that meeting, Fed Governor Stephen Miran voted for a 50bps cut and Kansas City Fed president Jeff Schmid supported keeping rates on hold. Based on recent remarks, we expect them to vote the same way this time, with at least one other participant (St. Louis Fed President Alberto Musalem) siding with Schmid. The risk is there’s more than two dissenters favoring a hold, potentially Governor Michael Barr, Boston Fed president Susan Collins, and Chicago Fed president Austan Goolsbee.

FOMC Dot Plots should remain unchanged. In September, the FOMC median rate forecast implied one cut for both 2026 and 2027, no change in 2028 and the longer-run at 3.0%. Risk is the FOMC front-loads rate cuts to 3.0% in 2026 to prevent the hiring slump from morphing into widespread firing. That can modestly weigh on USD as one-year interest rate futures anchor closer to 3% from currently 3.11%.

The US October JOLTS report (Tuesday) is a major job check ahead of Fed showtime. Further declines in the hiring rate, quit rate and vacancy-to-unemployed ratio would add to signs of worsening labor demand. If so, the Fed funds futures curve will likely adjust lower against USD.

The Reserve Bank of Australia (RBA) is widely expected to keep rates on hold at 3.60% (Monday). The risk is the RBA changes its assessment that monetary policy is slightly restrictive to closer to neutral. That would signal an extended pause and underpin cash rate futures pricing for hikes in the next twelve months. Australia’s November labor force survey (Wednesday) will also guide rate hike expectations. Bottom line: AUD/USD has scope to sustain a break above its next key resistance at 0.6700.

The Bank of Canada (BOC) is widely expected to keep rates on hold at 2.25% (Wednesday). The BOC is poised to emphasize again that it “sees the current policy rate at about the right level to keep inflation close to 2%.” The swaps market implies nearly a full 25bps rate increase to 2.50% over the next twelve months. Bottom line: USD/CAD has scope to edge lower before stabilizing between 1.3500-1.3600 over the next few weeks.

The Swiss National Bank (SNB) is widely expected to keep rates on hold at 0.00% (Thursday). The US-Swiss trade deal boosts Switzerland’s growth prospects and suggests the bar is high for a negative SNB policy rate. The swaps market implies less than 50% probability of a 25bps rate cut to -0.25% in the next twelve months. USD/CHF is likely to stay within its multi-month 0.7900-0.8100 range in the near term.

Macro Checkpoint: Japan wages, Norway CPI, and UK GDP

On Sunday, Japan October labor cash earnings are expected at 2.2% y/y vs. 2.1% in September. The less volatile scheduled pay growth for full-time workers is forecast at 2.4% y/y vs. 2.3% in September. According to the Bank of Japan (BOJ) the rate of increase in scheduled cash earnings is highly likely to continue to show relatively high growth for the time being, reflecting the rise in the rate of base pay increases and the minimum wage increases from this autumn.

The swaps curve price in 90% odds of a 25bps BOJ rate hike to 0.75% on December 19. Tighter monetary policy paired with Japan’s government latest fiscal stimulus package is JPY positive. We see room for USD/JPY to adjust lower towards the level implied by US-Japan two-year bond yield spreads around 140.00.

On Wednesday, Norway November headline CPI is expected at 2.7% y/y (Norges Bank forecast: 2.5%) vs. 3.1% in October and underlying CPI is seen at 3.1% y/y (Norges Bank forecast: 3.1%) vs. 3.4% in October.

Persistently above target inflation backs the Norges Bank’s prudent easing of monetary policy stance and is NOK supportive. The Norges Bank has penciled in one 25bps cut in the next 12 months to 3.75% while the swaps market implies 40bps of easing.

On Friday, UK October real GDP is seen at 0.1% m/m vs. -0.1% in September, tracking below the Bank of England’s (BOE) Q4 projection of 0.3% q/q. The pick-up in the UK October PMIs point to upside risk. Regardless, the BOE has room to ease policy further because real GDP growth is slightly below potential supply growth of around 1.4% a year.

The UK swaps curve has virtually fully priced-in a 25bps BOE rate cut to 3.75% at the next December 18 meeting and roughly 60bps of total easing over the next twelve months. We expect GBP to underperform on the crosses.

EM Central Bank Watch

Brazil’s central bank (BCB) is widely expected to keep rates at 15.00% for a fourth consecutive meeting (Wednesday). The risk is that it’s a dovish hold. Brazil headline inflation is making good progress towards the bank’s 1.5%-4.5% target band and 2025 projection of 4.6%.

BRL and Brazilian equities plunged on Friday after Flávio Bolsonaro’s (son of the jailed former president Jair Bolsonaro) announced that he’ll run for president next year - general elections will be held on October 4. That raised the possibility of fracturing the right, bolstering left-leaning President Luiz Inácio Lula da Silva’s re-election prospects. Regardless, Brazil’s high real positive interest rates (currently around 10%) act as a magnet for foreign capital in favor of a firmer BRL.

Peru’s central bank (BCRP) is expected to resume easing with a 25bps cut to 4.00% (Thursday). However, it’s a close call: 4 of the 7 analysts polled by Bloomberg pencil in a cut while the remaining 3 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.

Türkiye’s central bank (CBTR) is expected to slash rates 125bps to 38.25% (Thursday). 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.

Philippine central bank (BSP) is widely expected to cut rates 25bps to 4.50% (Thursday). At its last October meeting, BSP unexpectedly cut the policy rate 25bps to 4.75% and signaled more easing in the pipeline. The BSP statement stressed “The favorable inflation outlook and moderating domestic demand provide room to further support economic activity.” The swaps market is pricing in 50bps of easing over the next twelve months and rates to bottom at 4.25%.