Top Things To Watch

The forthcoming two weeks leading up to Christmas are expected to be filled with events that may induce volatility peaks, presenting potential profit opportunities for those who select the "right" side of the trade.

The release of U.S. inflation data, the European Central Bank (ECB) policy meeting scheduled for Thursday, and the Federal Reserve (FED) rate decision next week may result in subdued currency trading for the time being, considering the significant event risk on the horizon.

Recent geopolitical developments, particularly the weekend downfall of Syrian President Bashar al-Assad, along with macroeconomic factors and trades related to President Trump, are providing additional momentum for markets to maintain long positions in the US dollar (USD).

The USD continues to be supported as a safe-haven, especially in light of the increased geopolitical tensions. In addition to the political instability in Syria, the Middle East, Ukraine, and Russia, South Korea is also experiencing turmoil, a nation that was once regarded as a cornerstone of the East Asian economy. Given this context, it is not surprising that the USD has garnered support, and there appears to be little incentive to reduce long USD positions.

Let us review the events that warrant your attention:

December 8th

Australia: RBA interest rate decision

Both the Australian (AUD) and New Zealand (NZD) dollars experienced an increase following China's commitment to an "appropriately loose" monetary policy for the upcoming year, aimed at bolstering economic growth.

Additionally, China plans to adopt a more proactive fiscal policy, and this development is favorable for Australia, given that China is its largest trading partner, accounting for nearly one-third of all Australian exports. Furthermore, China serves as the primary overseas market for numerous Australian goods and services. The relationship in trade and investment with China is crucial for Australia's future prospects.

The Reserve Bank of Australia (RBA) remains the only central bank among its counterparts that has not initiated rate cuts, and it is not anticipated to do so in December. However, it may adopt a more cautious stance regarding growth targets.

December 11th

U.S. Consumer Price Index (CPI) YoY - November

As I write this article, the USD is experiencing a slight decline, influenced by last week’s employment report, which suggests another interest rate reduction by the FED later this month. The only factor mitigating these losses is the renewed uncertainty in the Middle East.

The FED is largely anticipated to implement another interest rate cut despite a rebound in job growth observed in November. However, the US consumer inflation data for November may offer additional insights into the monetary policy direction for 2025. The market's reaction following the release of this report will likely reflect speculation regarding the pace of future interest rate reductions.

Canada: BoC Interest Rate Decision

The Canadian dollar (CAD) may appreciate if the Bank of Canada (BoC) implements a smaller-than-anticipated reduction in interest rates, although any increase could be constrained. The market currently anticipates a significant likelihood of a 50 basis-point cut; therefore, should the BoC opt for a 25 basis-point decrease, there is potential for the CAD to gain value.

December 12th

Eurozone: ECB Interest Rate Decision

In ECB's final policy meeting of the year analysts largely anticipate an additional 25-basis point reduction in interest rates. Although Eurozone inflation increased slightly in November, it still appears to be trending towards the 2% target, with indications that wage pressures may be subsiding.

The ECB is also expected to release updated forecasts for growth and inflation, which are likely to be adjusted downward for the upcoming year. Since the ECB's previous meeting in October, tariff risks for Europe have escalated following Trump's electoral victory; both France and Germany are facing significant political instability; business activity has experienced a notable slowdown, and the Euro (EUR) has depreciated.

Market participants should closely monitor whether ECB President Christine Lagarde indicates that the central bank is proceeding with rate cuts automatically or if she strongly underscores a data-driven approach to decision-making.

Switzerland: SNB Interest Rate Decision

The Swiss National Bank (SNB) is anticipated to reduce its key policy rate by 25 basis points, with the majority of analysts predicting that the rate will approach near-zero by 2025.

Market expectations are leaning towards a more significant reduction of 50 basis points, driven by sluggish inflation in Switzerland and the SNB's reluctance to allow the Swiss franc (CHF) to appreciate further, which has risen approximately 2% against the EUR since the policy meeting in September.

Switzerland currently holds the second lowest interest rate among major economies, following Japan. However, unlike Japan, the Swiss central bank is contending with a robust currency that is contributing to low inflation levels. The CHF is projected to depreciate, yet it is not expected to relinquish all of its recent gains in the upcoming year, particularly if the ECB implements rate cuts of at least 100 basis points in 2025, exceeding the SNB's adjustments, in an effort to protect the eurozone economy from anticipated U.S. tariffs.