Forex analytics. The dollar has cast aside doubts – ForexNews.PRO
The Fed turned out to be much less “hawkish” than expected, and the expansion of the balance sheet is perceived almost as a loss of independence. Coupled with Jerome Powell’s horror stories about the labor market and the fastest growth in unemployment claims since the pandemic, this allowed the EURUSD to meet both long targets at 1.17 and 1.175. What’s next?
Ahead of the December FOMC meeting, many officials expressed serious concerns about inflation. The market expected almost five dissident “hawks”, in fact, it got two. The others didn’t dare. If they haven’t done it now, will they do it in 2026? Investors are doubtful.
The Fed has returned to expanding the balance sheet. Over the past four years, with the exception of a break due to the collapse of Silicon Valley Bank in early 2023, it has steadily declined. The purchase of $40 billion in bonds per month will put pressure on treasury yields. The Treasury may not worry about debt market signals that it is spending too much money. This is good for GDP in the short term, but bad for inflation in the long term.
Especially in the context of the change of the Fed chairman. The Kevin Hassett–Scott Bessent bond will work for the benefit of the White House. His boss has repeatedly stated the need to reduce the federal funds rate to 1%. That’s what it’s all about. After the sharpest rise in applications for unemployment benefits since 2020, the futures market shifted expectations of monetary policy easing from April to March. Derivatives have increased the chances of three acts of monetary expansion in 2026 from 30% to 40%. Should we be surprised by the collapse of the US dollar?
Jerome Powell, at a press conference following the last FOMC meeting in 2025, talked too much about the risks of a weakening labor market. Now investors believe that the slightest signs of a deterioration in the employment situation will result in aggressive rate cuts. Of course, the statistics on October and November non-farm payrolls will put all the dots on the i. The BLS plans to publish it on December 16.
The ECB meeting will be held on the same day. The European Central Bank has made it clear that it is not going to cut rates. However, the EURUSD rally may change his views. The Governing Council expects a slowdown in inflation in 2026, followed by a return to the target in 2027. The strengthening of the euro will put a spoke in the wheel of such a forecast. Isn’t it time to turn on the “dovish” rhetoric?
