Summary: What You Need to Know This Week
- The U.S. dollar is on the defensive after the Federal Reserve cut rates by 25 basis points on December 10, lowering the federal funds rate to 3.50–3.75%.
- Traders still expect more Fed rate cuts in 2026, even as officials urge restraint.
- Key FX pairs to watch include EUR/USD, GBP/USD, USD/JPY, USD/INR, and the DXY index.
- Major risk events this week include the Bank of England and Bank of Japan policy meetings, as well as key U.S. retail and labor market data.
Market Outlook: Dovish Fed Shift Pressures USD
Following last week’s rate cut, the dollar remains under selling pressure as traders recalibrate expectations. Slowing inflation, a softening labor market, and a global shift in monetary policy direction are contributing to the greenback’s weakness.
Key Drivers of Dollar Weakness
| Factor | Description |
|---|---|
| Fed Easing | The December cut has shifted market sentiment decisively toward a prolonged easing cycle. |
| U.S. Data Weakness | Jobless claims, consumer spending, and retail sales indicate slowing demand. |
| Treasury Yield Declines | The 10-year U.S. yield has fallen to ~4.1%, down from recent highs of 4.3%. |
| Global Central Bank Convergence | ECB is holding, BoE expected to cut, BoJ may hike – narrowing the yield gap. |
| Risk-On Sentiment | Stock and commodity rallies post-Fed suggest diminished safe-haven flows into USD. |
Weekly Currency Pair Forecasts (15–21 December 2025)
EUR/USD – Bullish Breakout Potential
- Forecast Range: 1.1700 – 1.2000
- Support: 1.1650
- Resistance: 1.1850 / 1.1900
- Bias: Bullish
- Driver: ECB stability vs. dovish Fed
The euro is trading at the upper end of its multi-month range. A breakout above the 1.1850 level could open the path to 1.20. With the ECB maintaining policy and the Fed moving dovishly, the euro remains supported.
GBP/USD – Cautious Upside Ahead of BoE
- Forecast Range: 1.3300 – 1.3600
- Support: 1.3300
- Resistance: 1.3500 / 1.3600
- Bias: Cautiously Bullish
- Driver: USD weakness vs. expected BoE rate cut
Sterling has benefited from the weaker dollar, but risks loom. A widely expected 25 bp cut by the BoE on December 18 could cap gains. Near-term resistance lies around 1.3600; support holds near 1.3300.
USD/JPY – Yen Strength as BoJ Turns Hawkish
- Forecast Range: ¥152.00 – ¥158.00
- Support: ¥152.00
- Resistance: ¥157.00 / ¥158.00
- Bias: Bearish USD / Bullish JPY
- Driver: Potential BoJ hike and intervention risk
The yen is poised for gains as the BoJ signals tightening. Analysts expect a 25 bp hike at the December 18–19 meeting. Markets also anticipate potential intervention if USD/JPY approaches ¥160.
USD/INR – Rupee Under Pressure Post-RBI Cut
- Forecast Range: ₹89.00 – ₹91.00
- Support: ₹89.00
- Resistance: ₹91.00
- Bias: Bearish INR
- Driver: RBI easing, trade imbalances
The RBI’s December 5 rate cut has pushed USD/INR to record highs. With further easing likely and weak capital flows, the rupee may remain on the back foot. Expect possible intervention near ₹91.00.
DXY (U.S. Dollar Index) – Breakdown Continues
- Current Level: ~98.30
- Forecast Range: 97.50 – 100.00
- Support: 97.50
- Resistance: 100.00
- Bias: Bearish
- Driver: Lower yields, softer U.S. data, improving global risk sentiment
DXY is trading near its lowest level in several months. Without a hawkish policy surprise or strong U.S. data, the dollar index is likely to remain under pressure, especially if global central banks do not ease further.
Key Economic Events to Watch (15–21 December)
| Date | Event | Market Importance |
|---|---|---|
| 16 Dec | U.S. Retail Sales (Nov) | Medium |
| 17 Dec | U.S. Nonfarm Payrolls & Unemployment (Nov) | High |
| 17 Dec | UK CPI Inflation (Nov) | Medium |
| 18 Dec | Bank of England Rate Decision | High |
| 18 Dec | European Central Bank Rate Decision | Medium |
| 19 Dec | Bank of Japan Rate Decision | High |
This week’s events will set the tone for Q1 2026. Currency traders will watch U.S. jobs data closely for signs of labor market cooling, while the BoE and BoJ decisions could shift rate differentials across major pairs.
Dollar FAQs – Trader Questions Answered
Will the Fed cut rates again in 2026?
Yes, markets still price in multiple cuts in 2026, although the Fed’s latest projections suggest only one. Inflation remains above the 2% target, and policymakers have signaled caution going forward.
Can EUR/USD reach 1.20?
A move to 1.20 is possible if the pair decisively breaks above 1.1850. Continued USD weakness and a neutral ECB support the euro, though momentum is needed.
Is GBP/USD likely to rise further?
Further upside is possible, but gains will depend on the BoE’s messaging. A dovish tone could limit GBP’s advance even as the dollar remains weak.
Could Japan intervene in the yen market?
Yes. Intervention becomes likely if USD/JPY rises toward 160. Japanese authorities have clearly stated that they are monitoring FX levels and will act if necessary.
Final Thoughts
The December Fed cut marked a turning point for U.S. monetary policy and global FX trends. With further easing priced in and U.S. data softening, the dollar may continue to drift lower in the near term. This week’s central bank meetings and macro data could reinforce these moves or introduce fresh volatility. Traders should remain flexible and attentive to shifts in central bank tone, especially from the BoE and BoJ.
Sources: Analysis is based on recent Fed and global policy news, currency data and forecasts from the period (e.g. Reuters and FX analysis – reuters.com-roboforex.com-reuters.com-reuters.com-reuters.com-exchangerates.org.uk-reuters.com). These insights ensure our outlook is current and data-driven.