Dollar choppy as risk-off mood, dovish Fed unsettle markets

Forex

Summary:

The dollar steadied on risk-off flows but couldn’t erase losses after a dovish Fed tone. Tech-driven risk aversion hit crypto and the Aussie, while the franc strengthened after the SNB held rates.

The dollar found support on Thursday from a broad risk-off mood in markets, but failed to recoup its overnight losses against peers such as the euro, yen and sterling after the Federal Reserve delivered a less hawkish outlook than some had expected.

Investors in Asia dumped risk assets such as stocks and cryptocurrencies after disappointing earnings from U.S. cloud computing giant Oracle (ORCL.N) reignited fears that surging AI infrastructure costs could outpace profitability.

That helped stem the safe-haven dollar's slide, which initially faced selling pressure after remarks from Fed Chair Jerome Powell surprised some who had been positioned for a more hawkish tone.

The risk selloff petered out somewhat in Europe, however, to leave the euro at $1.1704, steady on the day at a near two-month high, after a 0.6% gain on Wednesday. Sterling was at $1.13374, also steady after a 0.65% rise on Wednesday. ,

The dollar also dipped versus the yen. It was down 0.14% at 155.8 yen after a 0.56% drop the previous day.

The Fed lowered rates on Wednesday by 25 basis points but, as the move was widely expected, the reaction reflected much more the broader messaging, projections and the voting split.

"Investors were bracing for a hawkish rate cut. In the end, there were only two dissenters to the cut and the Fed kept a rate cut in their median forecast for 2026," said Chris Turner, global head of markets at ING.

"Equally, it seems that Chair Powell was reluctant to be boxed into the view that the Fed was now on a pause," he said.

Heading into the Fed meeting, traders had been wondering whether they would get a similar message to those received from the Australian central bank chief and from an influential European Central Bank policymaker suggesting that their next moves would be rate hikes.

Also weighing on the dollar, U.S. Treasuries attracted bids after the Fed announced it would start buying short-dated government bonds from December 12 to help manage market liquidity levels, with an initial round totalling around $40 billion in Treasury bills.

AUSSIE AND CRYPTO HIT

However, while the largest currencies were still focused on the Fed, the most risk-sensitive parts of the market were still being swayed by the weakness in tech stocks.

Bitcoin , often viewed as a barometer of risk appetite, briefly slid back below the $90,000 level, and was last hovering at that point, down 2.4%. Ether was down more than 4% at $3,200.

"Even with a softer Fed outlook, the market is still working through the excess leverage from October, so reactions to macro signals are slower than usual," Gracie Lin, OKX's Singapore CEO, said of the fall in crypto prices.

"The 25-basis-point cut was already priced in... and the wider macro and geopolitical backdrop is still uncertain. All of that keeps the immediate response muted."

The Australian dollar also got caught in the flight from risk and fell 0.5% to $0.6644.

Also hurting the Aussie was data showing that Australian employment in November fell by the most in nine months.

The Swiss franc firmed slightly after the Swiss National Bank left its policy rate unchanged at 0%, and said a recent agreement to reduce U.S. tariffs on Swiss goods had improved the economic outlook, even as inflation has somewhat undershot expectations.

The franc last traded at 0.7992 per dollar after hitting its strongest level in nearly a month. It was at 0.9348 to the euro.

source: reuters

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Glendon

Forex

Economic

The Bank of England will cut interest rates by a quarter point to 3.75% on December 18, according to all economists polled by Reuters, with evidence showing still-elevated inflation drifting downwards convincing most that a tightly split policy committee will flip towards easing.

Governor Andrew Bailey was among those voting on the nine-member Monetary Policy Committee in November to keep Bank Rate unchanged at 4.0%, but hinted that positive news on inflation moving closer to the 2% target might change his mind.

British inflation fell in October for the first time since May, to 3.6% from 3.8%, in line with the central bank's expectations, and November data due next week could show a further drift downwards.

That, alongside a tax-raising budget from British finance minister Rachel Reeves since the last meeting and news of a slight rise in unemployment, will probably be enough to convince at least a slim majority of five MPC members to vote for a cut to 3.75% on December 18.

NO CONSENSUS ON RATE PATH BEYOND MARCH

All 64 economists in a Reuters poll taken December 5-11 expected that outcome, up from a near-80% majority last month. A decision to change rates outside of the quarterly forecasting schedule would be the MPC's first since June 2023.

Around two-thirds of economists polled expected a follow-up cut in Bank Rate to 3.50% by end-March.

"A December cut looks pretty much nailed on. There's a fair debate about the final cut to 3.5%, when and whether that happens. For us it's a base case," said James Rossiter, head of global macro strategy at TD Securities.

"That said, if the economy and the labour market continue to soften rapidly and inflation eases away a bit next year, then I can start to see a scenario... where the Bank of England has to cut closer to 3%," Rossiter said.

There is no majority among economists for any further cuts, even though the median forecast shows Bank Rate bottoming at 3.25% in the third quarter of 2026.

A BoE rate cut on December 18 would follow the U.S. Federal Reserve's decision on Wednesday to cut its federal funds rate by a quarter point.

Economists at HSBC recently changed their December forecast to a cut, in part because of strong expectations built into financial markets that the BoE has done nothing to dislodge.

"While the BoE isn't averse to surprising the market in general, in our view the last thing the sterling rate market needs right now is the BoE adding to a sense of confusion. Governor Bailey will be aware of this," noted Simon Wells, chief European economist at HSBC.

INFLATION PATH

Inflation was expected to slow to 3.1% next quarter and 2.4% in the second quarter of 2026, roughly similar to the previous poll.

Economic growth was forecast to average 1.4% this year and 1.1% next, unchanged from last month's poll.

A separate Reuters poll of 19 property market experts also published on Thursday showed the average British home price was expected to rise 2.0% this year and 3.8% in 2026, less than the respective 2.6% and 3.1% median forecasts in a survey three months ago.

Asked to identify the biggest barriers to homeownership for first-time buyers, 13 of 14 housing market experts chose difficulty in saving up for a deposit.

Ray Boulger, of mortgage broker John Charcol, said "there is still scope for mortgage rates to fall a bit further," based on expectations for further cuts in Bank Rate.

Source: Investing

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Adam

Commodity

Oil retreated to the lowest since October, tracking wider losses in equities and other risk assets.

Global benchmark Brent fell back below $62 a barrel, reversing an earlier advance of as much as 0.7%. Pressure from disappointing earnings offset the rising risk of escalating tensions between Washington and Caracas.

US forces intercepted and seized a sanctioned tanker — a very large crude carrier — in a move the Venezuelan government called an “act of piracy.” The OPEC member holds the world’s largest oil reserves and exported around 586,000 barrels a day last month, which mostly went to China.

The increased tensions come against a bearish backdrop for crude, as more production from OPEC+ and the Americas is set to overwhelm tepid demand growth and lead to a glut. The International Energy Agency offered some respite from the gloom on Thursday, trimming its estimate of a record glut for the first time since May, though it still sees a major oversupply.

“All in all, for 2026, stockbuilds should be higher than in 2025, though strong China buying and continued geopolitical risks keep the ex-China surplus more modest, helping to replenish still-low inventories,” Citigroup Inc. analysts including Eric Lee wrote.

Meanwhile, Ukraine attacked a shadow-fleet tanker linked to Russia’s oil trade, even as the US pushes for a ceasefire between the two sides. The latest incident means that since the end of last month there have been at least five attacks on vessels that had ties to Russia.

Source: Bloomberg

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Winkelmann

Political

Economic

Stocks

Apple CEO Tim Cook met U.S. House members on Wednesday to push back against federal legislation that could require the iPhone maker to authenticate users' ages and possibly collect sensitive data on children, lobbying instead to put the onus on parents to decide whether to tell app stores about a child's age.

The bill, called the App Store Accountability Act, is aimed at making sure that minors are not using harmful content online.

Texas has already signed a similar bill into law, requiring parental consent to download apps or make in-app purchases for users aged below 18. Utah was the first U.S. state to pass a similar law earlier this year and Australia introduced a nationwide social media ban on under-16s this week.

While the notion of age limits for online content has broad U.S. public support, legislative efforts have kicked off a behind-the-scenes brawl between Apple and Google and tech rivals such as Meta Platforms. Apple and Google, which own the largest app stores in the world, say verifying the age of minors could entail mass collection of children's birth certificates and other sensitive documents, while Facebook and Instagram owner Meta has argued that requiring app stores to check ages is the only effective way to enforce limits.

Apple, which has long resisted government interference in data privacy matters, has expressed concerns that the federal U.S. legislation would require it to collect identifying information about virtually every Apple user, including children. Cook met House Energy and Commerce Committee members on Capitol Hill on Wednesday to discuss the concerns, Apple said.

"Not all legislative proposals are equally protective of privacy or focused on holding all players in the ecosystem accountable," Apple's global head of privacy, Hilary Ware, said in a letter to the committee last week. "Some well-intended proposals for age verification at the app marketplace level ... would require the collection of sensitive information about anyone who wants to download an app, even if it's an app that simply provides weather updates or sports scores."

A Pew Research poll in 2023 found that 81% of Americans support requiring parental consent for children to create social media accounts and 71% support age verification before using social media.

Source: Reuters

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Michelle

Forex

Economic

Applications for US unemployment benefits rose last week by the most since the onset of the pandemic, after a big drop during the Thanksgiving holiday week.

Initial claims increased by 44,000 to 236,000 in the week ended Dec. 6, according to Labor Department data released Thursday. That was the biggest jump since March 2020 and followed the lowest level of applications in more than three years in the previous week. The figure exceeded all but one estimate in a Bloomberg survey of economists.

Weekly initial claims tend to be choppy around the holidays and will likely continue to fluctuate through the end of the year, but Thursday's figures are toward the higher end of readings seen in 2025. Companies like PepsiCo Inc. and HP Inc. have laid out plans to reduce headcount in recent weeks, and nationwide layoffs in October were the highest since early 2023.

The four-week moving average of new applications, a metric that helps smooth out volatility, ticked up to 216,750 last week.

Concerns about the labor market have weighed on consumer sentiment in recent months. A majority of respondents in a preliminary December survey by the University of Michigan expect unemployment to rise in the coming year.

Federal Reserve officials lowered interest rates for a third straight meeting Wednesday to support what Chair Jerome Powell called a "gradually cooling" labor market. While officials didn't project higher unemployment next year compared to their September forecasts, Powell said the job market faces "significant" downside risks.

Continuing claims, a proxy for the number of people receiving benefits, dropped to 1.84 million in the week ended Nov. 29, which included Thanksgiving.

Source: Bloomberg Europe

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Adam

Economic

U.S. stock futures tick down, in a possible reversal from gains logged in the prior session. Analysts are pouring through the implications of a Federal Reserve interest rate cut and attempting to suss out the path ahead for borrowing costs. Cloud-computing giant Oracle’s stock price slumps in extended hours trading following a disappointing current-quarter outlook, while Photoshop-owner Adobe’s annual forecast tops estimates.

Futures lower

U.S. stock futures pointed lower on Thursday, as investors assessed both the outlook for interest rates after the Fed slashed borrowing costs for the third time since September and earnings from cloud giant Oracle.

By 02:04 ET (07:02 GMT), the Dow futures contract had fallen by 213 points, or 0.4%, S&P 500 futures had dipped by 59 points, or 0.9%, and Nasdaq 100 futures had decreased by 308 points, or 1.2%.

The main averages on Wall Street rose in the prior session, buoyed by the Fed’s decision to lower rates by 25 basis points, while Chair Jerome Powell issued a message in his post-meeting news conference that was more balanced than many had anticipated.

At the end of trading, the benchmark S&P 500 was up by 0.67% at 6,886.68, close to a record closing high notched in late October. The blue-chip Dow Jones Industrial Average ticked up by 1.05% to 48,057.75 and the Nasdaq Composite gained 0.33% to 23,654.16.

Dollar slips after Fed decision

The U.S. dollar remained under some pressure after touching a seven-week low overnight, with Powell flagging that he does not think a “rate hike is anyone’s base case” in the months ahead.

Interest rate futures were factoring in more rate reductions in 2026, undercutting the greenback. By 03:13 ET, the U.S. dollar index, which tracks the currency against a basket of its global peers, was down by 0.1% at 98.65.

On Wednesday, the Fed slashed rates by a quarter-point to a range of 3.50% to 3.75%, although members of the central bank showed deep divisions over the move. Policymakers previously rolled out similarly-sized decreases to borrowing costs in September and October.

Whether a further drawdown lies ahead at the start of next year is seen as unlikely due to a desire among many Fed officials to gauge the direction of both a weakening job market and “somewhat elevated” inflation. Economic projections also indicated that the Fed expects U.S. growth to gather steam in 2026.

Yet these predictions revealed stark differences in how rate-setters foresee the trajectory of rates during a time when President Donald Trump is pursuing an upheaval of worldwide trade and artificial intelligence has fueled a surge in investment.

Much attention is now swirling around Trump’s pick to replace Powell after his term at the head of the Fed finishes in May. The frontrunner is reportedly White House economic adviser Kevin Hassett, leading analysts to suggest that he could advocate for the type of aggressive and rapid rate cuts long called for by the president.

“Current Fed members suggest just one further cut is their 2026 central projection, but with changes coming and the jobs market cooling the risks are skewed towards them cutting by more,” analysts at ING including James Knightley and Padhraic Garvey said in a note.

Oracle guidance disappoints

Shares of Oracle tumbled by more than 12% in extended hours trading after the cloud-computing group issued a sales and profit forecast which missed Wall Street expectations.

The Texas-based company added that spending would also increase by $15 billion versus prior estimates, exacerbating growing worries that massive expenditures on AI may not generate the type of immediate returns hoped for by investors.

Adjusted profit for the current quarter is seen at $1.64 to $1.68 per share, below analysts’ estimates of $1.72, according to LSEG data cited by Reuters. Revenue for the period is anticipated to rise by between 16% to 18%, slower than expected growth of 19.4%.

Revenue and adjusted operating income in Oracle’s just-ended fiscal second-quarter, along with a measure of upcoming cloud contracts, were under estimates as well.

Heading into the results, concerns surrounded the firm’s heavy -- and often debt-driven -- spending on AI. The worries were enough to deflate much of the enthusiasm stemming from its last blockbuster earnings release in September. Oracle’s stock price, which initially surged after those results, have since retreated.

Adobe outlook tops expectations

Meanwhile, Adobe issued a better-than-expected annual revenue and profit guidance, in a sign that the Photoshop-maker may be benefiting from a push to monetize its AI-enhanced offerings.

Full-year revenue is tipped to be between $25.90 billion and $26.10 billion, compared with expectations of $25.87 billion. Adjusted earnings of $23.30 and $23.50 per share are seen as well, topping estimates of $23.34 a share at the midpoint.

A stalwart with the creative community, Adobe has embarked on a multi-year push to fold AI into more of its suite of tools to help users quickly craft images and videos. Monthly active users for Adobe’s freemium products jumped by 35% versus a year ago to more than 70 million, CFO Dan Durn told Reuters.

But intensifying competition for contracts, sparked in part by the widespread embrace of AI by businesses, has threatened to weigh on returns.

Trump says CNN sale should be part of Warner Bros Discovery deal

In the latest twist of a closely-watched saga in Hollywood and Wall Street alike, President Trump said that news network CNN should be sold as part of any deal involving the purchase of parent firm Warner Bros Discovery.

Talking to reporters at the White House, Trump that CNN, a traditional target of the president’s ire, should change its ownership regardless of who buys Warner.

It is “imperative that CNN be sold,” Trump said.

The comments come after entertainment giant Paramount launched a $77.9 billion hostile bid for Warner, which would include the group’s cable networks like CNN. A previous deal between Warner and Netflix, announced earlier this month, would only pertain to Warner’s studio and streaming products.

Source: investing

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Adam

Stocks

MARKET WRAPS

Stocks:

European indexes were mixed and tech stocks fell, as results from Oracle revived concerns about an AI bubble.

The results erased optimism Wednesday, driven by the Federal Reserve's decision to cut interest rates and signal further cuts, IG said, contributing to a broader risk-off move.

ADSS said that heading into the year-end, AI-linked valuations continue to be a major concern for investors and shape broader market sentiment.

It added that markets will now quickly turn to next week's delayed payrolls release--pushed back due to the U.S. government shutdown--which stands as the next major catalyst.

Fed Chair Jerome Powell pointed on Wednesday to a job-market risk that economists have been worried about for months: Official U.S. statistics could be drastically overstating recent hiring.

The country could be losing 20,000 jobs a month, Powell said, a concern that was part of the decision to cut interest rates, and investor attention will be fixed on the fresh jobs numbers for October and November, as well as possible revisions for previous months due next week.

Economic Insight

Mexico's tariffs flag the risk posed by protectionist measures against Chinese exports from countries other than the U.S., Maybank said.

What helped save China's economy from a sharper slowdown in 2025--namely, the diversion of exports to non-U.S. markets--could come back to bite it in 2026.

China's trade surplus with Mexico more than doubled in 2019-24.

It's not just Mexico, over 2019-24, the EU's trade deficit with China rose 63%.

Rebalancing away from exports and toward domestic demand matters not just for China's economy, but increasingly, to its ties with trading partners , it added.

Stocks to Watch

Delivery Hero is likely to face increasing competitive pressure in the Middle East and North Africa region, Citi said as it downgraded its stock recommendation to sell from neutral.

Rheinmetall has managed to quadruple sales in six years and is in a league of its own, Bernstein said as it lifted its rating on the stock to outperform from market-perform, and raised its price target.

The shares are currently pricing in an overly pessimistic scenario, and the stock should outperform when the European defense sector recovers from its recent falls.

U.S. Markets:

U.S. stocks were set to open in the red on Thursday and bitcoin fell.

The tech-heavy Nasdaq was leading losses with AI stocks falling in sympathy with Oracle.

Oracle shares fell as much as 11% in after-hours trading on Wednesday.

"As with most of the big tech names, capex continues to ramp up and exceed the Street's expectations, weighing heavily," Direxion said.

Forex:

The euro was near a two-month high against the dollar, and ING said it could rise to $1.1800 by year-end, adding that this would require weak U.S. jobs data next week or positive ECB growth forecast revisions.

The dollar remained under pressure after hitting a seven-week low after the Fed's rate-cut decision.

Commerzbank said Powell's statement seemed to suggest the risks of higher inflation were less dramatic than those of a weaker labor market.

"This could pave the way for further interest-rate cuts in the coming year, following a pause in January."

Bonds:

Eurozone government bonds yields declined , following the direction of Treasurys, but the drops were less pronounced.

The falls have been largely driven by the market's takeaway from Powell's comments after the Fed's rate cut, with more focus on labor market weakness than on inflation.

"Powell stressed greater importance on the weakness in the labor market while inflation was 'somewhat' elevated," Jefferies said.

BNP Paribas took profit on a short 10-year Treasury trade after the rate cut.

"We see the Federal Reserve's imbalanced reaction function weighing on the rates markets ahead of the next payrolls data."

Danske Bank is still forecasting two final Fed rate cuts in March and June next year, adding that Powell's avoidance of strong forward guidance led to a decline in Treasury yields during his press conference.

Madison Investments expects a slower pace of additional Fed easing from here, anticipating that the Fed will be on hold until the second quarter of 2026.

JGBs extended price gains in afternoon Tokyo trade, following solid demand for 20-year sovereign securities.

Energy:

Oil prices fell as investors monitored progress to end the war in Ukraine and rising tensions between the U.S. and Venezuela.

After settling higher in the previous session when the U.S. seized an oil tanker off the coast of Venezuela.

The incident adds to geopolitical risks, even as fundamentals remain bearish, with global supply from OPEC+ and the Americas expected to outpace demand growth.

Meanwhile, Trump dialed up pressure on Ukraine to quickly accept a U.S.-drafted peace plan--a development that could lead to the lifting of sanctions on Russia and bring additional barrels back onto the market.

Metals:

Gold rose and silver futures climbed 2.2% to $62.39 an ounce after hitting a record high of $63.25 earlier.

"Both gold and silver are heading for their strongest annual performance since 1979, with gold up more than 60% and silver more than doubling, driven by heavy central-bank demand, rising ETF inflows, and investor shifts away from sovereign bonds and currencies," MUFG said.

Traders now await next week's delayed U.S. data, with NFP jobs and CPI inflation figures in focus.

Copper

Copper rose after the rate decision and traders remain concerned over signs of tightness in the physical market.

Meanwhile, the market was shrugging off China's weaker economic data and focusing instead on copper's long-term demand from renewables, EVs and data centers, ANZ said.

These rosy demand prospects clash with growing supply concerns amid a series of mine disruptions worldwide, keeping prices elevated.

EMEA HEADLINES

ECB Unlikely to Follow Fed For Now, But Currency Moves May Yet Prove Decisive

Europe's leading central bank will not necessarily follow the Federal Reserve in lowering its key interest rate, but policymakers may face growing pressure to do so if the pace of easing significantly weakens the U.S. dollar.

The Fed Wednesday lowered its key rate for the third time since the European Central bank last cut in June. Its key rate now sits in a range between 3.5% and 3.75%, having been 4.25% to 4.5% when the ECB lowered its equivalent to 2%. However, Chair Jerome Powell gave little indication that further cuts were imminent.

Naturgy Shares Drop After BlackRock Offloads Part of Stake

Shares in Spanish energy group Naturgy sank after major investor BlackRock sold off part of its stake in the company.

BlackRock's Global Infrastructure Partners sold a 1.7 billion-euro ($1.99 billion) stake in Naturgy, according to a regulatory filing. The fund is one of the largest shareholders in Naturgy, according to FactSet data.

Swiss National Bank Holds Key Interest Rate at 0%

Switzerland's central bank left its key interest rate unchanged for a second straight meeting, but signaled it is open to a further cut that would take borrowing costs below zero if a sustained period of falling prices threatens.

The Swiss National Bank held its policy rate as expected at 0% on Thursday, having stood pat at its last meeting in September after six consecutive quarterly cuts. However, it said further cuts remain an option.

GLOBAL NEWS

IEA Forecasts Smaller Oil Surplus as OPEC+ Output Declines

The oil market's projected surplus has narrowed due to lower OPEC+ production, but a large supply overhang continues to cloud the outlook, the International Energy Agency said in its closely watched monthly report.

The Paris-based organization, which represents major oil-consuming nations, lowered its forecast for global oil supply growth to 3 million barrels a day this year and 2.4 million the next, from earlier projections of 3.1 million and 2.5 million barrels a day.

U.S. Flies Bombers in High-Profile Show of Support for Japan

TOKYO-Two U.S. B-52 bombers flew in formation with Japanese fighters over the Sea of Japan, a conspicuous display of U.S. support for Tokyo as it battles Chinese anger over remarks Prime Minister Sanae Takaichi made about Taiwan.

The exercise came a day after Russian and Chinese warplanes conducted their own joint patrol in the seas around Japan's southern islands, which Tokyo said were intended as a show of force directed at a U.S. security ally in Asia.

Crumbling Peace Deals Show Limits of Trump's Approach to Ending Wars

A new round of border clashes between Thailand and Cambodia and resurgent fighting in eastern Congo, two conflicts President Trump claimed to have resolved, have shown the constraints of his high-speed pursuit of peace.

Since the start of his second term, Trump has leveraged the economic and military might of the U.S. to get warring parties in several deep-rooted international conflicts to the negotiating table and extract hasty peace deals.

U.S. Blueprint to Rewire Economies of Russia, Ukraine Sets Off Clash With Europe

The Trump administration in recent weeks has handed its European counterparts a series of documents, each a single page, laying out its vision for the reconstruction of Ukraine and the return of Russia to the global economy.

The proposals have sparked an intense battle at the negotiating table between America and its traditional allies in Europe. The outcome stands to profoundly alter the economic map of the continent.