Bold headline: The dollar steadies as markets parse Fed signals and weigh hawkish risks, while other major actors posture for clarity.
FX
The U.S. dollar paused its slide after the Fed event, with the index hovering near 98.00 as expectations for higher rates recede and seasonal factors come into play. The market continues to reprice the Fed path, pushing the two-year yield down and eyeing a terminal rate around 3.05% by year-end next year, keeping upward pressure on the dollar’s downside beyond that point.
Today’s U.S. calendar offers little in the way of new catalysts, so markets may stabilize after the risk event. If equities stay under pressure, there could be a floor for the dollar as risk-off sentiment helps anchor it. Our view is for the DXY to hover around 98.35, with a modest dip toward 98.20 if selling persists.
Frantisek Taborsky
EUR: Focus shifts to euro-area policy signals
November euro-area inflation is expected to slow to 2.6% year-over-year, still the highest in nine months, which would reinforce the case for higher euro area rates and a hawkish re-pricing. After the Fed, attention turns to the European Central Bank meeting next Thursday. Christine Lagarde is set to present fresh projections that will test whether markets fully price in no further rate cuts, aligning with our view.
The German yield curve has moved higher this week, particularly the 2-year tenor, supporting a tighter spread versus the U.S. and helping EUR strength against the dollar. After EUR/USD briefly touched 1.175 yesterday, the dollar’s stabilization could nudge the pair back toward the mid-1.170s to 1.175.
In the U.K., October GDP surprised modestly to the downside, contracting 0.1% month-on-month, with weakness in manufacturing. That supports a case for BoE rate cuts next week, with markets pricing in around 22 basis points. The pound sits near little changed this morning, though early trades suggest potential pressure toward around 0.878 EUR/GBP.
Frantisek Taborsky
CEE: Week’s end quiet before central-bank meetings
The region faces a quiet Friday ahead of a busy week next, when the focus will be on policy decisions from Hungary’s National Bank and the Czech National Bank. Romania’s inflation cooled only slightly to 9.8% year-on-year, indicating a peak may be in sight and inflation could ease by the middle of next year. The central bank is expected to hold rates for longer, with the first cut not anticipated until August.
Turkey saw inflation expectations ease slightly, from 23.5% to 23.4% over the one-year horizon, consistent with the November inflation cooling but suggesting a gradual slowing rather than a rapid drop.
Next week, the CEE region will again be in the spotlight as both the NBH and CNB are anticipated to hold rates. The NBH is likely to publish a new forecast with a lower inflation trajectory, while the CNB should reflect softer November inflation and a lower inflation outlook driven by cheaper energy for households.
The Czech koruna has recovered after a brief early-week dip caused by a stronger rate differential. EUR/CZK eased toward 24.200 yesterday, though rates imply a broader trading range around 24.250–24.300 as the U.S. dollar softens post-Fed.
Frantisek Taborsky
TRY: Turkiye cuts rates as inflation cools
In the final meeting of the year, Türkiye’s central bank delivered a 150 basis-point rate cut, larger than the 100bp move in October. This followed a stronger-than-expected November inflation print. The policy rate now rests at 38%, with the interest-rate corridor unchanged at 450 basis points.
The bank emphasized a data-driven approach for future decisions, offering little clarity on near-term actions. Going forward, inflation expectations, negotiations over 2026 minimum wage, and the planned automatic tax changes will be pivotal, alongside considerations of dollarization and reserve adequacy in shaping the outlook.
Frantisek Taborsky
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