Signal over Noise with Ulrike Hoffmann-Burchardi
At a Glance
The desk believes that the macroeconomic conditions are shifting favorably, supported by a combination of US monetary and fiscal stimulus. Per the full note source, this unique alignment, although not as aggressive as the past crisis responses, is likely to provide tailwinds moving into 2026. The anticipated 25 basis point cut by the Federal Reserve, resulting from lower than expected inflation and a weakening labor market, reinforces this view. As consensus data shifts towards further easing, the desk aligns with the expectation that upcoming non-farm payrolls data due on December 16 will be pivotal in shaping the Fed's next moves.
Key Takeaways
- 01Anticipating a 25 basis point Fed rate cut due to soft inflation and labor data.
- 02Synchronized fiscal and monetary stimulus may provide tailwinds for markets.
- 03Median inflation expectations declining suggest easing Fed policies.
- 04Upcoming non-farm payroll data is critical for future Fed direction.
Full Analysis
What the desk is arguing
The desk anticipates beneficial changes in macroeconomic support, buoyed by synchronized monetary and fiscal activities. This expectation is backed by UBS's analysis indicating likely Federal Reserve rate cuts that could stimulate growth moving into 2026.
Supporting this outlook are recent economic indicators: a modest rise in core PCE inflation of only 0.2% and a concerning decline in private employment numbers, both suggesting that the labor market is under pressure. Additionally, median inflation expectations dropping to 4.1% highlight the Fed's increasing flexibility to cut rates further.
Where it sits in our coverage
UBS has set a target of 1.075 for the currency pair in question. Meanwhile, jpmorgan has a target of 1.10 for March 2026, while bofa stands in contrast with a significantly lower target of 1.04 for the same tenor.
This perspective aligns closely with the prevailing view among institutions, suggesting an overall hawkish tilt, although our target is at the upper end of the market range compared to bofa's more bearish outlook.
How other firms see it
There is alignment among firms like jpmorgan who share a positive outlook, while bofa presents a diverging, more cautious stance. This divergence highlights a crucial strategic decision for traders in assessing these competing forecasts.
With the anticipated Federal Reserve decisions and their implications for USD interest rate movements, currency pairs like USD/JPY may reflect heightened volatility as expectations adjust to the evolving economic landscape.
Market Implications
Traders should watch the reaction of USD/JPY as it closely correlates with Fed policy, particularly around the December 16 non-farm payroll data release, which could influence expectations for further rate cuts.
From the original
Tune in at the start of the trading week ahead of the New York opening bell as Ulrike Hoffmann-Burchardi, CIO Americas and Head of Global Equities for UBS Wealth Management, briefs you on what’s the signal, and what’s just noise in the markets. Recorded on 7 December 2025.
Related speeches
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The desk is positioning for potential rate cuts to re-enter the conversation sooner than expected. Per the full note from James Smith, the consensus among market participants seemingly discounts the prospect of easing until 2028; however, the desk believes this view underestimates the shifting economic indicators across the US, Europe, and the UK. With inflation remaining elevated at 4% and labor market recovery showing signs of faltering, there could be room for the Federal Reserve to pivot back to an easing policy next year. This contrasts with our internal coverage which suggests a focus on rate stability rather than cuts in the near horizon.
Top of the Morning: U.S. macro update & FOMC takeaways
The desk anticipates that the recent Federal Open Market Committee (FOMC) decision to cut interest rates by 25 basis points, as expected, signals a delicate balancing act between a weakening labor market and persistent inflation concerns. Per the full note [source], Paul Hsiao highlighted that the Fed now views policy rates as being near neutral, suggesting that future monetary policy will be cautious but needs to navigate complexities like elevated inflation influenced by tariffs. Given the current macroeconomic landscape and the Fed's tone, traders should be watchful of signs indicating the Fed's direction heading into 2026, particularly when interpreting labor market data against inflation indices.
Signal over Noise with Ulrike Hoffmann-Burchardi
The desk believes that the easing monetary policy anticipated for Q1, alongside a constructive global equity outlook, presents a favorable environment for risk assets and could support growth in FX markets. Per the full note [source], UBS's CIO predicts a likely Fed rate cut as inflation trends down and the labor market softens, which could lead to a significant boost in economic activity moving forward. With the effective stimulus policies poised to impact growth positively, the forthcoming US economic data will be crucial in determining the sustainability of this optimism. Key indicators will likely shape traders' expectations around intervention from the Federal Reserve and broader market reactions.
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The desk maintains a cautiously optimistic view on the short-term economic outlook, driven by resilient consumer spending and a potentially favorable December FOMC meeting, as highlighted in the commentary from UBS. Per the full note, recent data shows 2.7% real spending growth, reflecting a solid recovery trajectory which should support further upward momentum in equity markets and, consequently, a favorable environment for risk currencies. However, with crucial labor market data upcoming, the desk underscores the need for careful attention to shifts in economic indicators and Fed communications, particularly as market participants speculate on rate cuts and their potential impacts on currency valuations.
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