DXY softens as dovish undertone eclipses dissent within Fed
The Fed delivered a third consecutive interest‑rate reduction, lowering the target range to 3.50–3.75, while maintaining projections for one more cut in 2026. The vote split was 9–3 in favor of easing by a quarter-point cut.
Contrary to the September and October meetings, markets were better prepared for what has become a familiar, cautious, data‑dependent tone from Chair Powell. This left a wider window for dovish surprises; just two dissents against any cut, which is what we got, may not have been enough to push markets toward a squarely hawkish interpretation. The dollar was therefore bound to edge lower, with the dollar index (DXY) closing 0.4% down.
That said, while Powell did his best to convey a sense of unanimity, tilting ever so slightly dovish, the details reveal just how divided the FOMC really was. There were two formal dissents against any cut at all, but a larger group of policymakers who joined the debate – though not on this year’s voting roster – also opposed the move. Six regional Fed bank presidents in fact signaled that the appropriate rate for end‑2025 should have been 3.75–4%. These are often referred to as “silent” dissents, underscoring how much shallower next year’s easing is likely to be – barring, of course, any material data surprise.
From here, meaningful dollar downside appears unwarranted, at least until next week’s heavy US data calendar (see more below). Amid silent yet lingering dissents, only a stark deterioration in the labor market would keep those hawks at bay; otherwise, urgency for further easing looks increasingly unjustified for now.
Further Fed meeting details
The message from Powell was clear: the Fed is more comfortable now than it was back in September, and the next move will depend on how the data unfolds. Nothing especially new there – but what tilted markets more to the dovish side, or at least less hawkish than expected, was the way inflation and labor‑market risks were framed.
On the latter, Powell acknowledged the FOMC’s concerns about softening conditions. Inflation, while still elevated, was described predominantly as a goods‑driven story, with tariffs cited as the main culprit, though he hinted at a likely cooling after Q1 2026. Markets inevitably seized on labor market softness as the more pressing issue. Meanwhile, service inflation was seen as cooling, mainly due to weaker wage growth – a consequence of the same soft labour market.
Finally, the FOMC projections saw 2026 growth revised up from 1.8% to 2.3%, supported by looser fiscal policy and AI‑driven investment. Growth for 2025 was also revised higher, from 1.6% to 1.7%. The Fed’s preferred inflation gauge, the personal consumption expenditures measure, was revised down from 2.6% to 2.4% for 2026, following a decline from 2.9% in 2025 (September revision at 3%).
Sterling and euro shift focus to data calendar
EUR/USD and GBP/USD pushed higher, nearing resistance at 1.17 and 1.3390 respectively. We did not expect such a strong move, but here is our reasoning. As noted, hawkish expectations had built up compared with the two previous Fed’s rate‑cutting meetings, when the dollar strengthened despite two cuts. This time, also, a broader global recalibration toward tighter policy earlier in the week fueled speculation of shallower easing ahead, with the Fed included. In other words, the bar for hawkishness was set high – and unmet.
That said, the ball is now firmly with the data, as Powell made clear. A heavy flow of releases, both fresh and backlogged due to the shutdown, will arrive before the January meeting. Next week already brings November’s NFP, and inflation, all of which will shape expectations for the Fed’s next move. On meaningful undershooting, we see scope for EUR/USD to break into the 1.18 zone, while GBP/USD could breach 1.35.
Chinese yuan strongest since September 2024
While most Asian currencies have recently weakened against the US dollar, the Chinese yuan has continued to outperform.
The CNY’s gains have been significant because, firstly, the moves run contrary to other moves in Asia (significantly, the Japanese yen has been lower all year) but also because the gains have been seemingly supported by the People’s Bank of China.
The yuan’s strength has impacted local companies, with the state-owned financial newspaper The Securities Times reporting overnight that Chinese corporates have seen a sudden surge in hedging activity.
Overnight, the onshore USD/CNY fell to its lowest level since September 2024, while the offshore USD/CNH approached 18-month lows, testing key support at 7.0500.
DXY slips into oversold territory on RSI signals
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Key global risk events
Calendar: December 8-12
All times are in EST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
