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The USD is entering the final month of 2025 with heavy expectations that the Fed will cut interest rates at next week’s FOMC meeting on December 10. US Labor Secretary Lori Chavez-DeRemer, Fed Presidents John Williams (New York) and Mary Daly (San Francisco) judged that the risks from a softening labor market outweighed the rationale for holding rates high for longer amid weaker demand and tightening credit conditions. The Fed is also scheduled to end quantitative tightening on December 1 by reinvesting maturing securities instead of letting them roll off.
EUR/USD may eye higher levels in December after finding firm support at 1.15 throughout November. In contrast to the Fed, the case has strengthened for the European Central Bank to maintain the deposit facility rate at 2% through 2026. Appearing before the European Parliament on December 3, ECB President Christine Lagarde will likely convey that interest rates are at the correct level amid optimism for the resilient Eurozone economy later in the year and the situation in France.
We are increasingly wary of rising intervention risks in the JPY and KRW. Each currency has depreciated more than 5% against the USD over the past three months, briefly erasing this year’s gains last week. Finance ministers in Tokyo and Seoul have openly flagged one-sided and speculative moves in their exchange rates. On excessive currency weakness feeding imported inflation, the Bank of Japan stressed that it may bring forward its timeline for a rate hike without waiting until next year’s spring wage negotiations end. The Bank of Korea blamed the KRW’s weakness for limiting its ability to cut rates to support the domestic economy.
Unlike Seoul, Tokyo has been explicit about its intervention threshold, stepping in before USD/JPY reached 160. When Japan intervened in July 2024, USD/JPY fell sharply from a 38-year high of 162. Given its high correlation with the JPY on an indexed basis this year, expect USD/JPY to pull USD/KRW lower when it falls.
CNY appreciated 0.7% 7.0742 per USD in November, its best level since October 2024. Following the White House’s decision to maintain the suspension of reciprocal tariffs on Chinese imports until November 2026, the People’s Bank of China guided the USD/CNY central parity rate to 7.0789, its lowest since mid-October 2024.
Although US-China relations will remain tense, they may become less confrontational in 2026. US President Donald Trump is scheduled to visit China in April 2026, with Chinese President Xi Jinping making a state visit to the US later in 2026. The two leaders are also likely to meet again at the APEC Summit hosted by Beijing and the G20 meeting hosted by Washington.
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