A surge in global rate cuts has sent the US dollar surging against major currencies, with the euro, Swiss franc, and Japanese yen all seeing significant declines.
Global Markets React to Rate Cuts as Dollar Gains Strength
A surge in rate cuts across the globe, including outsized 50 bp moves in Switzerland and Canada, has sent the U.S. dollar surging against major currencies. The euro, Swiss franc, and Japanese yen all saw significant declines, with the dollar up 1% on the euro, 1.6% on the Swiss franc, and 1.8% on the Japanese yen.
The recent rate cuts have helped to turbocharge the U.S. dollar, which has drawn energy from higher Treasury yields as investors scaled back expectations for aggressive U.S. policy easing next year. Despite still being confident of a cut by the Federal Reserve next week, markets have largely given up on a move in January, which is now priced at just a 20% chance.
One wild card that could influence market sentiment is the return of U.S. President-elect Donald Trump to the Oval Office, which may lead to dozens of executive orders with wide-ranging trade and policy implications. The dollar’s relentless strength has also been pressuring currencies in emerging markets, limiting their scope for policy easing.
The Indonesian rupiah hit a four-month low on Friday, while India’s central bank is seen likely to have been selling dollars via state banks to support the rupee, which is near record lows. The yen has also been a major loser, undermined by expectations that the Bank of Japan is unlikely to hike interest rates next week.
In addition to the dollar’s strength, disappointing results from a 30-year bond auction on Thursday and heavy losses in long-term Treasuries this week have contributed to the climb in yields. U.S. rates are seen falling only slowly to 3.8% by the end of 2025, compared with 1.75% for Europe and 2.7% for Canada.
Asia Markets Down as China’s Economic Hopes Fade
In Asia, most stocks are down, with China leading the losses after hopes had been high for the Central Economic Work Conference in Beijing. The conference had seen a change in monetary policy stance to “moderately loose”, the first such change in 14 years, but nothing specific emerged.
Friday’s Market Watch: Key Developments
Several key developments will influence markets on Friday, including:
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UK monthly GDP data
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Euro zone industrial output
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U.S. import prices data
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Portugal central bank governor Mario Centeno speaks
These events will provide insight into market sentiment and could drive further volatility in global markets.
