What's takeaway 1 on Global FX?

Dollar declined after the Fed meeting, influenced by global rate moves.

What's takeaway 2 on Global FX?

Upcoming US data and central bank meetings are key for FX direction.

What are the market implications for Global FX?

The dollar's recent weakness could persist if US data disappoints or other central banks maintain hawkish stances. FX volatility may increase around key data releases and central bank decisions, creating trading opportunities.

What are the risks to this view on Global FX?

Risk of unexpected Fed hawkishness or stronger US data reversing dollar weakness. Central bank divergences could lead to sharp FX moves. Liquidity may be thin during holiday periods.

Global FX: Dollar down after Fed; central banks and US data center stage for FX next week

What the desk is arguing

J.P. Morgan's Global FX Strategists (Locke, Jankovic, Popescu) argue that the dollar weakened after the FOMC meeting, driven by shifting global rate dynamics. They note that FX volatility is currently priced for upcoming US data and central bank meetings, implying potential for further moves. The team emphasizes the importance of positioning ahead of these events.

Where it sits in our coverage

We have no internal coverage data on the relevant currencies for this commentary. Our consensus and firm spread are not available.

How other firms see it

Based on available data, no other firms are cited with specific stances on this topic.

Hello and welcome to this week's At Any Rate podcast. My name is Pat Locke. I'm the Global FX Research Team here out of New York.

Joined with me today, Octavia Popescu out of London and Ladislav Jankovic, my colleague here in New York. Thank you both for joining. No rest for the weary.

Busy couple of weeks here in markets. Certainly kind of global rates moves have been front and center for our space. We'll discuss a little bit kind of how that's spilling over.

The Fed was certainly impactful. And yeah, no real, again, no rest for the weary as we head into the next week. An unusual calendar from the U.S. data side, and of course, the usual slate of central banks.

We've just had the Fed, but we still get the ECB, BOJ, et cetera. But as I said, you know, it's been interesting these last couple of weeks, really since I guess the end of November in rates markets. You've seen kind of like a bearish selloff in some global fixed income.

Certainly that's had some FX ramifications. I think the first point for me that really stands out is that there's not like a single discrete event that has led to this global rates repricing. It's really been kind of a waterfall of events across different kind of like smaller economies, really.

And as you go through the roster, you add the RBNZ in late November, which cut, but tweaked their OCR profile. There's been a big bearish repricing there. You know, the BOJ, a way to give a speech in a way that kind of like forced market to reprice December.

You've had Canadian payrolls data that repriced Canada. You have ECB speakers that are talking about hikes. And then finally, of course, the RBA, the icing on the cake, actually kind of pivoting their bias to a hiking bias.

So that's interesting. I think for a number of reasons. First, again, just kind of the disparate nature of it all, data in Canada, some policy out of Japan, central bank decisions from the RBNZ and the RBA.

So they're all kind of like collectively different in their own right. But also I think importantly, it's not kind of a US led development. That I guess is it feels a little bit unusual typically when you have kind of these big bang repricings.

It's maybe some US data or a Fed announcement, things like that. They really kind of like galvanize the market. But instead, it's been kind of this kind of cascading waterfall around the globe.

And the net result is that the dollar, you know, as the US has been kind of a laggard in this repricing, I mean, the dollar has struggled. And really, I think that's from a couple of channels, obviously, I think rest of world rates is outpaced, kind of the slight shift higher in US yield that we've seen recently. But also, I don't think, you know, the Fed this week really did the dollar necessarily a whole lot of favors either.

Certainly I think the market was coming into the event with expectations that it would be, you know, a hawkish cut. And certainly recency bias would suggest a little bit of scarring from the October meeting where Powell had a very forcibly dislodged rates market pricing for December and January. We thought maybe that, you know, we thought that basically there would be a high bar to kind of like out hawk those hawkish cut expectations.

But really, even then we were kind of, I think the FX space in general was underwhelmed with Powell's delivery, really. And you've saw, you know, you've since seen the yields in the US kind of come down, and the dollar kind of weakened on the back of that. Certainly there were some dovish contours.

I won't get into it in a super ton of detail here. But suffice to say that against this backdrop of global rates repricing higher, you know, this kind of like net underwhelming Fed outcome for this week certainly poured some gasoline on kind of a dollar depreciation trend. And we saw some real accelerations, euro dollar touched 117.50 later in the week on the back of the Fed.

But on that dovish point, you know, it does segue into kind of like what we're looking at next week. I mentioned at the outset kind of the unusual event risk. That comes in by the way of basically a double payrolls release, which is unusual A, because of course there's two of them, and two, they're normally out before the December FOMC and not after.

And that effectively means that we'll have three payrolls prints before the next FOMC meeting. But obviously, you know, the Fed continues to have a certain sensitivity to labor market risks that has kind of sponsored the Fed asymmetry that I think has long anchored the dollar here. And now it doesn't look like much is priced, you know, for January in particular.

So if you get a couple of a week prints on Tuesday next week, you know, that could certainly, you know, weigh on the dollar from here. The final thing I'll say from my side, interesting developments, obviously out of Canada, I mentioned the payrolls release there, 20 to 25 basis points repricing at the short end. In short order, they're obviously quite jarring.

We've had kind of a bearish CAD view. So you know, that one caught us admittedly a little off guard. I think there's a number of reasons to perhaps downplay what happened there.

I mean, certainly there's some questions around the data itself. Can the labor market really be that strong if full-time jobs are contracting? Other kind of data surprises that we've seen like the third quarter GDP come against a backdrop of final domestic demand having contracted.

And that's I think the message you kind of got from BOC this week as well that, you know, they acknowledge it. Certainly the labor market data has been better than expected, but they still kind of stress that business hiring intentions for next year remain muted. And they didn't also notably really upgrade their expectations of GDP in 2026.

So in that respect, I kind of view this as a tactical disappointment, but not necessarily kind of like upsetting the strategic view where Canada and CAD, you know, should ultimately face some serious headwinds just in part because of this ongoing structural adjustment in the U.S.-Canada trade conflict and also kind of the obvious lingering USMCA renegotiation risk, which I think, you know, should continue to pressure business investment and hiring intentions. BOC made similar comments as well. So we make an argument in our piece this week that, you know, Canada is not Australia.

Again, you know, RBA pivoted more obviously to a hiking bias. Our economics and rates colleagues have been kind of championing over the course of the last year that Australia is like a true soft landing candidate, solid resilient growth, CPI kind of at the high end of the band there, a healthy overall picture. And I don't think you can say the same about that for Canada given kind of the slack that's still expected to persist next year.

So we think, you know, the RBA is a relatively more credible potential hiker next year, less so for the BOC. We continue to expect no change in the policy rate in Canada next year. And so for that reason, you know, I still think kind of like the repricing in CAD and CAD rates has been aggressive but probably can temper out from here.

So certainly a lot kind of going on in our space, but Octavia, keen to pull you into the conversation, talking about some European effects here as well. Interested to hear kind of like how you're thinking about Sweden. There's been a decent move there.

I note in our research piece today that, you know, stocky has kind of outperformed relative to what the race repricing would otherwise suggest in the G10 cross section. And we also had the SMB this week. You know, anything interesting there?

I thought it was pretty straightforward. But, you know, we've had some interesting changes in views in Swiss recently. So curious to kind of get your thoughts on those two quick.

Hey, Pat, yeah, on stocky, it has been a good move. But even after that, we do still see room for it to go given the fundamental drivers are still very much intact, like, you know, the pro cyclical environment, regional spillovers, generally improving growth data. So looking ahead as well, the confirmation of German fiscal spending when it comes should also be a support given the spillovers.

There's been a lot of focus on stockies week early December seasonality due to PPM flows. But our analysis actually shows that the stronger seasonality is actually bullish stocky from now on until year end. So that's what I would look out for at this juncture as well, tactically.

And for Swiss, the SMB was hawkish, brushing off recent inflation misses. But we don't expect it to be much of a durable support considering the global backdrop of, you know, improved growth prospects and the rates repricing higher elsewhere. So we still expect it to tactically underperform high beta in the region like stocky, for example.

So the SMB isn't really in the driver's seat for now. Okay, thanks. And I guess turning to next week, we've got a number of central bank decisions in your region.

You know, which one or two do you think are going to be the most kind of relevant for the FX space as we head into the new year? Yeah, I think in Europe, the BOE and Nordisk Bank will be the more interesting ones to watch for FX. I think the Riksbank and ECB should be more of a, each be more of a non-event.

For the BOE, I'd say risk still net starting bullish, given firstly, you've got FX positioning and pro-cyclico conditions being supportive. And then secondly, in our economy space case of a cut with no guidance change, it shouldn't really move the needle on the rate side. So putting that together, it's more about getting this relatively well-priced event risk out of the way, which should then allow Sterling to benefit from this pro-cyclical European lift environment.

And then scenario-wise, I'd say a hawkish one relative to market pricing would be one where the MPC signal a possibility that they're actually done or, you know, any future cuts are contingent on data, while a dovish delivery would be one where they signal an acceleration of cuts. And then for Nordisk Bank, there's two-sided risks, but I would say they skew tactically dovish because our economists are expecting that the rate path is going to be lowered compared to the last meeting, but it would still be higher than what the market is pricing now, which is a cut by June already, which we think is too early. Our economists expect no more cuts at all.

And then again, scenario-wise for tomorrow, but for next week, the dovish one would be where faster cuts are signaled. So as I said, the guidance for that is already somewhat priced, but it doesn't stop the market from pricing even more if that's what's confirmed. And then a hawkish delivery would inhale a reiteration of the previous rate path.

But so that's one risk to watch, but we do still think it has, and so Nokia has enough bullish forces going for it as well. And then third, DECB will probably just stick to the narrative to date and so is unlikely to be the focal point for Eurodollar next week with so much other event risk going on. So yeah, that should be more of a non-event and similar with Riksbank.

Ben, thanks. Lad, pivoting over to you, I mentioned some of the event risk specifically around US data for next week. What do you make of vol pricing as we kind of head into the last week of real event risk in December?

And more broadly, just interested to hear any kind of like, you know, bigger picture takeaways that you're seeing in the vol space right now? Yeah, thanks, Pat. Yeah, as you already alluded, there is quite a bit of focus on the next week, quite a few things happening.

We are quite watchful of the payrolls, the CPI and all set of central banks, as you guys were already discussing. But the payrolls seem to be pretty interesting. In general, the event risk pricing is quite subdued, even though we kind of got quite a bit of the DOW-ish press conference from Powell and focus on the payrolls, but didn't really move all that much the event risk pricing.

And just in general, the broad FX vols are pretty close to the five-year low, which does imply like a little bit of just like broad-based complacency as far as we see it. Now, from the point of the break-even specifically for the payrolls on the 16th, basically on the broad dollar, we see about 50 basis points on 0.5% move on the broad dollar priced into those break-evens. And that's in line with what we've seen on the previous sprints.

The question is really like if that's really with all the focus that we have on these payrolls, if that's really sufficient. And how we see it, how we consider it is potentially that 0.5% that's priced in the break-evens would be okay if, for example, Fed January pricing goes from about like six basis points that we have right now to about 15. If we get anything larger than that, that will really come short a little bit.

So in a way, like there does seem to be a bit of the two-sided risk there, considering that it's unclear if we actually do get some pretty interesting numbers, in which case we could see break-evens coming a little bit short of the pricing. But let's see. The other things that we've been watching this week, and it's been a really interesting week, is one thing is on just in general the hedging, we've been getting quite a bit of questions around the hedging and there's been some concerns around carry and volatile inequities.

Essentially the week started that way. Of course, the question there is like, what's the longevity of those concerns? And the things that we've been focusing in a little bit more along the line of trying to be pre-efficient with the cost and then still gain quite decent leverage.

So things like bullish EuroCAD and bearish TVCAD simultaneously, which then does often some pricing efficiencies. The other thing, as you guys already discussed, was the Dovish Fed and tactical dollar selling. Again, there is like a little bit on the longevity side there as well.

So again, people seem to be interested still to chase that type of play further. What it means for us in the options markets is one thing is dollar skew. It does seem to be additionally vulnerable.

Now the caveat there is that there is really very few pockets for really premium existing. One is the dollar czar. So we are watching that pocket of some premium in the dollar skew.

And the other thing is just directionally, dollar correlations are pretty high. So it's in a way like making a little bit challenging to find some cheap expressions directionally. One thing is then to consider like things like bearish dollar baskets that involve mix of G10 EM.

So we were kind of looking at things of the sort of the Aussie and Nokia, half and czar kind of things, a couple in those baskets and trying to get some more efficiency. So yeah, that's been our focus. Quite interesting in general, as you guys already pointed out.

Thanks very much, Vlad. I think we'll end it there. This communication is provided for information purposes only.

This episode was recorded on December 12th, 2025.

Global FX: Dollar down after Fed; central banks and US data center stage for FX next week

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Global FX: Dollar down after Fed; central banks and US data center stage for FX next week

What the desk is arguing

Where it sits in our coverage

How other firms see it

Sources & References

Primary source