US
USD is firmer near yesterday’s intra-day high; US equity futures point to a modest recovery following yesterday’s tech-driven stock market slump; and Treasury yields edged lower across the curve.
Fed Governor Christopher Waller stuck to his dovish bias yesterday pointing out that the Fed funds rate is still 50 to 100bps above neutral. In contrast, most other major central banks have reached neutral policy settings and signaled their done easing. Bottom line: relative monetary policy remains a drag for USD.
US November CPI takes the spotlight on today (1:30pm London, 8:30am New York). Headline and core inflation are expected to remain sticky around 3% y/y in November, signaling stalled progress towards the Fed’s 2% goal. Nevertheless, upside risks to prices are not martializing and leaves scope for the Fed to ease policy. The ISM prices paid indexes point to moderating inflation pressures.
EUROZONE
EUR/USD is down but trading above yesterday’s low around 1.1703. ECB is widely expected to leave the policy rate unchanged at 2.00% for a fourth consecutive meeting (1:15pm London, 8:15am New York). The statement and updated macroeconomic projections should highlight that the ECB is in a good place to keep rates on hold for some time.
Watch out to see if ECB President Christine Lagarde pushes back against market pricing for rate hikes or shows she is comfortable with them; if she’s comfortable, it will give EUR a boost.
UK
GBP/USD is down but trading above yesterday’s low around 1.3312. The Bank of England (BOE) is widely expected to resume easing with a 25bps cut to 3.75% (12:00pm London, 7:00am New York). The Monetary Policy Committee (MPC) vote split may be tight: 5 in favor of a cut versus 4 supporting no change.
More importantly, the BOE will likely stress again that “if progress on disinflation continues, Bank Rate is likely to continue on a gradual downward path.” That would undermine GBP on crosses.
NORWAY
USD/NOK is trading just above its 200-day moving average (10.1923). As was widely expected, the Norges Bank left the policy rate unchanged at 4.00% and maintained its easing bias. The Norges Bank reiterated that “the policy rate will be reduced further in the course of the coming year,” while “a restrictive monetary policy is still needed” because inflation is still too high.
The policy rate forecast in the December Monetary Policy Report (MPR) is little changed from September. The Norges Bank still pencils in 75bps of cuts to 3.25% by Q3 2028. The swaps curve implies only one more 25bps cut in the next twelve months and the policy rate to bottom closer to 3.75%.
The risk is the market raise rate cuts bet slightly against NOK. Spare capacity in Norway’s economy is projected to increase, with the output gap expected to average -0.2% of potential GDP over 2026 vs. 0% in 2025.
SWEDEN
USD/SEK has formed a double-bottom around 9.2200. As was widely expected, the Riksbank left the policy rate unchanged at 1.75% and stuck to its on-hold bias. The Riksbank reiterated that “the rate is expected to remain at this level for some time to come.”
The December Monetary Policy Report (MPR) shows the bank pencils in the policy rate at 1.75% until Q4 2026, followed by a 25bps hike over the subsequent two years. That mirrors the policy rate path outlined in the September MPR.
The swaps curve is more aggressive and price-in a 25bps rate hike over the next twelve months. The risk is rate hike expectations are pushed further out which is a headwind for SEK. There’s still significant spare capacity in Sweden’s economy, with the output gap projected to average -0.6% of potential GDP over 2026 vs. -1.6% in 2025.
NEW ZEALAND
NZD/USD is trading heavy near 0.5766. New Zealand real GDP growth overshot expectations in Q3. Real GDP rebounded by 1.1% q/q (consensus: 0.9%, RBNZ projection: 0.4%) vs.-1.0% in Q2. The growth pick-up in Q3 was broad-based, with increases in 14 out of 16 industries.
The RBNZ signaled at its last November meeting that it’s done easing with a policy rate forecast implying no change until Q4 2026 followed by rate hikes in Q1 2027. The swaps curve is more aggressive and price-in 40bps of rate increases over the next twelve months.
Earlier this week, RBNZ Governor Anna Breman pushed back against market expectations for rate hikes next year. Breman stressed that “if economic conditions evolve as expected the OCR is likely to remain at its current level of 2.25% for some time.” We agree. There’s still significant spare capacity in the New Zealand economy, with the output gap projected to average -1.1% of potential GDP over 2026 vs. -1.6% in 2025. Bottom line: NZD/USD will likely trade within a 0.5700-0.5860 range in the near-term.
CZECH REPUBLIC
Czech National Bank (CNB) is widely expected to keep the policy rate at 3.50% (1:30pm London, 8:30am New York). Inflation is stable around the bank’s 2% target. The CNB is done easing and the swaps curve continues to price in rate hikes in the next two years.
TAIWAN
As was widely expected, Taiwan's Central Bank kept the policy rate on hold at 2.00% for a seventh consecutive meeting. Solid AI-driven growth is offset by below target inflation. TWD can remain overvalued for some time given Taiwan’s massive current account surplus of over 16% of GDP.
MEXICO
Mexico’s central bank is widely expected to cut the policy rate 25bps cut to 7.00% due to growth concerns (7:00pm London, 2:00pm New York). This would be the fourth consecutive cut. Mexico’s relatively high positive real rates and favorable balance of payments backdrop more than offset the drag to MXN from lower crude oil prices.
