Global rate cuts bolster USD dominance as market adjusts rate expectat
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The U.S. dollar extended its upward momentum on Friday, driven by a series of global rate cuts and rising U.S. Treasury yields, underscoring the currency’s stronghold amid evolving monetary policy landscapes.
Dollar surges on global monetary easing
The Federal Reserve's relatively restrained outlook compared to aggressive global rate cuts has solidified the dollar's position. The Swiss National Bank reduced its policy rate by 50 basis points to 0.5%, while the Bank of Canada enacted a similar move, cutting to 3.25%. Meanwhile, the European Central Bank delivered a 25 basis point cut to 3.5%, disappointing expectations for a deeper cut. The U.S. dollar strengthened across the board, gaining 1% on the euro (EUR/USD: 1.0530), 1.6% on the Swiss franc (USD/CHF: 0.8840), and 1.8% against the yen (USD/JPY: 152.75).
Treasury yields fuel bullish USD momentum
Rising Treasury yields have further supported the greenback, with the 10-year yield climbing to 4.25%, up 17 basis points on the week, and the 30-year yield surging 22 basis points—the largest weekly increase in over a year. A weaker-than-expected 30-year bond auction contributed to selling pressure, but the broader driver has been a repricing of terminal rates, now seen remaining elevated through 2025. U.S. rates are expected to decline modestly to 3.8% by the end of 2025, significantly higher than the 1.75% projected for Europe and 2.7% for Canada.
Emerging markets face USD pressure
The dollar's strength has exacerbated challenges for emerging markets. The Indonesian rupiah (USD/IDR: 15,450) hit a four-month low, prompting intervention by Indonesia’s central bank. Similarly, India’s Reserve Bank was likely selling dollars to defend the rupee (USD/INR: 83.20). The strength of the dollar limits policy flexibility in these economies, which are grappling with inflation and external vulnerabilities.
Asia and Europe diverge on policy and market performance
Asian equities underperformed as investor optimism waned after China’s Central Economic Work Conference provided no concrete details to follow up on its shift to "moderately loose" monetary policy for 2025. Meanwhile, European equities were muted, with EUROSTOXX 50 futures down 0.3%, reflecting caution ahead of eurozone industrial production data and ECB commentary.
Fed’s measured approach maintains USD edge
While markets still price in a near-certain 25 basis point cut at the Federal Reserve’s December 18 meeting, expectations for further easing in January have dropped to a mere 20% probability. This cautious Fed outlook contrasts sharply with global central banks' aggressive rate cuts, reinforcing the dollar’s appeal as a yield differential play.
Key developments to monitor
Market focus on Friday will center on: UK GDP Data – Monthly GDP figures could signal further economic strain in the region. Eurozone Industrial Output – Expected to reflect continued softening in manufacturing activity. U.S. Import Prices – Insight into external inflation pressures. ECB Commentary – Signals for future monetary easing paths.
With long-term U.S. Treasury yields rising and the Fed signaling a more measured easing trajectory, the dollar is poised to retain its dominance, underscoring its role as the premier safe-haven and yield asset in global markets.
Dollar surges on global monetary easing
The Federal Reserve's relatively restrained outlook compared to aggressive global rate cuts has solidified the dollar's position. The Swiss National Bank reduced its policy rate by 50 basis points to 0.5%, while the Bank of Canada enacted a similar move, cutting to 3.25%. Meanwhile, the European Central Bank delivered a 25 basis point cut to 3.5%, disappointing expectations for a deeper cut. The U.S. dollar strengthened across the board, gaining 1% on the euro (EUR/USD: 1.0530), 1.6% on the Swiss franc (USD/CHF: 0.8840), and 1.8% against the yen (USD/JPY: 152.75).
Treasury yields fuel bullish USD momentum
Rising Treasury yields have further supported the greenback, with the 10-year yield climbing to 4.25%, up 17 basis points on the week, and the 30-year yield surging 22 basis points—the largest weekly increase in over a year. A weaker-than-expected 30-year bond auction contributed to selling pressure, but the broader driver has been a repricing of terminal rates, now seen remaining elevated through 2025. U.S. rates are expected to decline modestly to 3.8% by the end of 2025, significantly higher than the 1.75% projected for Europe and 2.7% for Canada.
Emerging markets face USD pressure
The dollar's strength has exacerbated challenges for emerging markets. The Indonesian rupiah (USD/IDR: 15,450) hit a four-month low, prompting intervention by Indonesia’s central bank. Similarly, India’s Reserve Bank was likely selling dollars to defend the rupee (USD/INR: 83.20). The strength of the dollar limits policy flexibility in these economies, which are grappling with inflation and external vulnerabilities.
Asia and Europe diverge on policy and market performance
Asian equities underperformed as investor optimism waned after China’s Central Economic Work Conference provided no concrete details to follow up on its shift to "moderately loose" monetary policy for 2025. Meanwhile, European equities were muted, with EUROSTOXX 50 futures down 0.3%, reflecting caution ahead of eurozone industrial production data and ECB commentary.
Fed’s measured approach maintains USD edge
While markets still price in a near-certain 25 basis point cut at the Federal Reserve’s December 18 meeting, expectations for further easing in January have dropped to a mere 20% probability. This cautious Fed outlook contrasts sharply with global central banks' aggressive rate cuts, reinforcing the dollar’s appeal as a yield differential play.
Key developments to monitor
Market focus on Friday will center on: UK GDP Data – Monthly GDP figures could signal further economic strain in the region. Eurozone Industrial Output – Expected to reflect continued softening in manufacturing activity. U.S. Import Prices – Insight into external inflation pressures. ECB Commentary – Signals for future monetary easing paths.
With long-term U.S. Treasury yields rising and the Fed signaling a more measured easing trajectory, the dollar is poised to retain its dominance, underscoring its role as the premier safe-haven and yield asset in global markets.