The door to the Fed's easing cycle is ajar, and the dollar hits its worst day in nearly three months

On December 11, spot gold was trading around US$4,226 per ounce in the Asian market on Thursday. The Federal Reserve cut interest rates by 25 basis points as expected to support gold prices. Powell did not provide clear guidance on whether to cut interest rates again in the near future, but said "no." The scenario of "including future interest rate hikes" was interpreted by the market as the possibility of further interest rate cuts in January next year; U.S. crude oil traded around $58.83 per barrel. Oil prices closed higher on Wednesday, mainly affected by the news that the United States had seized an oil tanker near Venezuela, and the market's concerns about short-term oil supply intensified.

The U.S. dollar fell sharply against major currencies after the Federal Reserve announced an interest rate cut. The Federal Reserve lowered the federal funds rate target range by 25 basis points to 3.50%-3.75%, in line with market expectations, but three policy members disagreed on this decision. The key point is that the Fed hinted in its policy statement that it may pause cutting interest rates at its next meeting in January to assess more economic data.

Putting further pressure on the U.S. dollar is the statement of Federal Reserve Chairman Powell. He made it clear at the press conference that policymakers' "baseline scenario" does not include future interest rate hikes, saying the next move is "unlikely to be a rate hike."

Affected by this, the U.S. dollar index fell 0.6% to 98.66. EUR/USD rose 0.6% to 1.1694, USD/JPY fell 0.6% to 155.92, and USD/CHF fell 0.8% to 0.7996.

It is worth noting that although the Fed's latest "dot plot" median forecast shows that policymakers expect only one rate cut (25 basis points) in 2026, consistent with the September forecast, the interest rate futures market still expects 2There will be two interest rate cuts in 2026. The market currently believes that the probability of the Fed keeping interest rates unchanged in January next year is 78%. Analysts noted that concerns about slowing economic growth and a cooling labor market are offsetting the Federal Reserve's cautious approach to inflation, which together are contributing to the dollar's weakness.

Asian Markets

Australia’s unemployment rate remained at 4.3% in November, according to official data released by the Australian Bureau of Statistics (ABS) on Thursday. This figure was lower than the market consensus of 4.4%. In addition, Australia's employment growth data was -21.3K from 41,100 in October (upped to 42,000), which was lower than the consensus forecast of 20K. Australia's participation rate fell to 66.7% in November, www.xmyktj.cnpared with 66.9% in October (revised from 67%). Meanwhile, full-time employment fell by 56,500 over the same period, down from the previous reading of 53,600 (revised to 55,300). Part-time employment increased by 35,200 in November, after falling by 12,500 previously. (Revised from -13.1K)

Japanese Chief Cabinet Secretary Minoru Kihara said on Thursday that the government will pay close attention to the impact of U.S. financial conditions on the Japanese economy after the Federal Reserve (Fed) cuts interest rates.

U.S. market

The Federal Reserve lowered interest rates by 25 basis points to 3.50% to 3.75%, fully in line with expectations. The decision was taken through a tripartite chamber. Governor Stephen Millan once again voted for a larger 50 basis point rate cut. Meanwhile, Chicago Fed Ostan Goolsby and Kansas City Fed Jeffrey Schmid voted for no change. All other policymakers supported the quarter-hundred-point adjustment.

The new forecasts show remarkable continuity. The path for the federal funds rate remains unchanged, with policymakers still expecting the policy rate to fall to 3.4% at the end of 2026, followed by 3.10% at the end of 2027 and remain there until 2028. This would mean a 25 basis point decline each year in 2026 and 2027.

However, growth expectations have been revised upwards significantly. GDP is now expected to grow by 2.3% in 2026, up from 1.8% previously, 2.0% in 2027 and 1.9% in 2028. The labor market forecast is basically stable, with the unemployment rate expected to be 4.4% in 2026, the same as the previous forecast. The interest rate is reduced from 4.3% to 4.2% in 2027 and 4.2% in 2028. Policymakers continue to signal a soft landing baseline, in which the job market cools but the unemployment rate does not rise materially.

Inflation forecasts were revised down slightly. Overall personal consumption expenditures (PCE) are expected to be 2.4% in 2026, down from 2.6%, while forecasts for 2027 and 2028 remain at 2.1% and 2.0%. Core PCE was cut to 2.5% in 2026 and remains unchanged thereafter.

The central bank maintained the overnight interest rate at 2.25% today, in line with expectations.The most striking part of the statement was the Board's assessment that current policy rates are "broadly at an appropriate level" if inflation and economic activity evolve broadly as forecast in October. This clearly shows that the easing cycle is basically over and banks have entered a long-term stable policy period, barring major surprises.

The statement acknowledged the www.xmyktj.cnplex growth dynamics heading into year-end. The central bank expects final domestic demand to rise in the fourth quarter, but weaker www.xmyktj.cn exports will make overall GDP "likely soft". Growth is expected to be solid in 2026, although policymakers warn that uncertainty remains high and fluctuations in trade flows may continue to trigger quarterly swings.

Employment growth has been solid over the past three months, with the unemployment rate falling to 6.5% in November. However, the job market in trade-sensitive industries "remains weak" and hiring intentions across the economy remain "subdued" - reflecting the broader drag from structural trade restructuring.

Despite these pressures, the central bank expects continued economic easing to offset rising costs from shifting trade patterns. Therefore, CPI inflation is still expected to be close to the 2% target, giving the central bank room to maintain stability in the foreseeable future.

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