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Hello everyone, today XM Forex will bring you "[XM Official Website]: A collection of good and bad news affecting the foreign exchange market". Hope this helps you! The original content is as follows:
On December 11, the foreign exchange market ushered in a directional breakthrough. After the Fed's dovish interest rate cut was implemented, the US dollar index gapped and opened low to 98.78, down 0.74% from the high before the decision; the euro and the pound surged relying on the resilience of the European economy, the Japanese yen was boosted by expectations of interest rate hikes and stood firm at the 156 mark, and the Australian dollar was caught in the tug-of-war between inflationary stickiness and demand concerns. The following breaks down the good and bad logic based on core currency pairs to provide a reference for day trading.
There were three dissenting votes on the Federal Reserve's resolution, of which Schmid and Goolsbee clearly opposed interest rate cuts, and four "soft objections" suggested that the internal dispute over the pace of easing was heating up. At the same time, the Federal Reserve announced that it will launch a technical balance sheet (RMP) of US$40 billion per month on December 12. The scale exceeds expectations, which will alleviate liquidity pressure in the repo market in the short term and provide phased support for the US dollar.
The core of the resolution is positive for non-U.S. currencies: the dot plot maintains the expectation of one interest rate cut per year from 2026 to 2027. It did not cancel the interest rate cut as feared by the market, and raised the 2026 GDP forecast to 2.3% and lowered the core inflation forecast to 2.5%. Powell made it clear at the press conference that "the next step is not to raise interest rates," emphasizing the risk of non-linear deterioration in the job market, downplaying the upward pressure on inflation, and directly weakening the attractiveness of U.S. dollar assets. In addition, the exchange rate of the US dollar against the RMB has fallen back to around 7.1. While the pressure for RMB appreciation has eased, the demand for the US dollar reserve currency has declined marginally.
Although the Eurozone industrial climate index dropped to -9.3 in November, it was still better than the expected -10.1, indicating that the contraction of the manufacturing industry has narrowed. Schnabel, executive member of the European Central Bank, recently stated that "it is too early to discuss interest rate cuts," which represents a clear policy difference from the Fed's easing policy. In addition, the euro zone's trade surplus expanded to 32 billion euros in October, and export resilience provided fundamental support for the euro. The euro against the dollar once reached 1.1678.
The Eurozone’s industrial output fell by 1.2% month-on-month in September. Although it is lagging data, it reflects the lack of momentum for industrial recovery. Energy price fluctuations caused German factory orders to fall by 0.5% month-on-month in November, dragging down the economic outlook of the euro zone and limiting the gains of the euro.
The British service industry PMI unexpectedly rose to 50.3 in November, returning to the expansion range, mainly driven by the rebound in demand for consumer services. At the same time, the average salary growth rate in the three months to October remained at 6.1%. Although it was lower than the previous value, it was still higher than the inflation level, providing a buffer for domestic demand. The pound against the dollar once exceeded 1.3365.
The UK unemployment rate rose to 5.0% in the three months to September, the highest since the end of 2020. The number of employed employees decreased by 32,000 in October, and the deterioration of the job market intensified the pressure on the Bank of England to cut interest rates. The market is currently pricing in a 58% probability of the Bank of England cutting interest rates in February 2026, significantly higher than the 32% rate a week ago, suppressing the pound's upside potential.
Despite the Fed's interest rate cut, the current U.S. federal funds rate is still 2.75 percentage points higher than Japan's policy rate, and the interest rate advantage has not www.xmyktj.cnpletely disappeared. The 21.3 trillion yen stimulus plan launched by Japanese Prime Minister Takaichi Sanae has triggered financial concerns and limited the appreciation of the yen in the short term.
BoJ Governor Kazuo Ueda made it clear that "we are getting closer to achieving the 2% inflation target," suggesting that the December 19 meeting may raise interest rates to 0.75%. Overnight swap data shows that the market's pricing probability of the Bank of Japan raising interest rates this month has reached 88%. The yen appreciated rapidly against the US dollar after the decision, falling from 156.84 to 156.26.
Australia’s October CPI rose to 3.8% year-on-year, core inflation rose simultaneously, and private final demand increased by 1.1% in the third quarter, showing strong endogenous power in the economystrength. The market has begun to price in the possibility of raising interest rates in the first half of 2026, and RBA Chairman Bullock is likely to release a tightening signal at subsequent meetings.
International iron ore prices fell 8% from last month, and China's manufacturing PMI has been in the contraction range for two consecutive months, dragging down Australia's export expectations. At the same time, the depreciation of the US dollar drove the Australian dollar to passively appreciate to 0.6630, further weakening export www.xmyktj.cnpetitiveness and limiting the gains of the Australian dollar.
The day will focus on the Eurozone’s October industrial output data (17:00) and Bank of England Governor Bailey’s speech (21:00). In terms of operation, the EURUSD can rely on 1.1650 to go long with a light position, stop loss below 1.1620, and target 1.1700; USDJPY needs to be alert to a breakthrough of the 156 mark. If it falls below 155.80, it can pursue short positions with a stop loss above 156.50; GBP and AUD mainly operate in ranges to avoid aggressive pursuit of orders.
The above content is all about "[XM official website]: Collection of good and bad news affecting the foreign exchange market". It is carefully www.xmyktj.cnpiled and edited by the XM foreign exchange editor. I hope it will be helpful to your trading! Thanks for the support!
Due to the author's limited ability and time constraints, some contents in the article still need to be discussed and studied in depth. Therefore, in the future, the author will conduct extended research and discussion on the following issues: