Bold takeaway: the dollar paused its slide after a wave of Fed-driven selling, but the path ahead remains shaped by central banks and inflation data. But here's where it gets controversial: markets are already shifting focus to the ECB, German inflation, and a potential hawkish re-pricing that could tilt risks anew. And this is the part most people miss: local stories in Europe and Turkey will influence global moves just as much as Fed signals.
FX Daily: Dollar stabilises as markets digest Fed signals
FX
The US dollar steadies after the Fed’s latest communications, easing from earlier losses as rate-cut expectations recede and year-end seasonality softens activity. Market attention is turning toward the European Central Bank and German inflation data to test whether markets will maintain a hawkish tilt. In Central and Eastern Europe (CEE), markets remain relatively calm ahead of a string of key central bank meetings next week, while Turkey’s rate cut of 150 basis points signals easing inflation pressures.
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USD: Dollar stabilises after Fed meeting
Following Wednesday’s Fed meeting, the US dollar extended its retreat yesterday, with the DXY hovering near 98.00, close to our projection. The softer tone comes not only from shifting interest-rate expectations but also from the usual end-of-year seasonal dynamics. The market trimmed Fed tightening expectations again, sending the two-year yield down toward 3.50% and pricing in roughly a 3.05% terminal rate for the Fed by the end of next year, which adds to dollar downside pressure.
Today’s US calendar is light, so markets may settle down after the risk event. If equities tilt toward risk-off sentiment, that could provide a floor for the dollar. Our view is for the DXY to hover around 98.35, with limited downside toward 98.20 in the near term.
Frantisek Taborsky
EUR: Attention shifts to eurozone central bankers
German November inflation is expected to come in at 2.6% year-over-year, the highest in nine months, reinforcing the case for higher euro-area rates and a market pricing shift toward a hawkish stance. After the Fed meeting this week, focus will shift to the ECB meeting next Thursday. Christine Lagarde is expected to present a fresh set of projections, which will test whether current pricing already discounts no further rate cuts, aligning with our view.
The front end of the EUR curve rose by about 10 basis points this week in the 2-year tenor, offsetting moves in USD rates and supporting further EUR outperformance. After EUR/USD touched around 1.175 yesterday, the dollar’s stabilization could pull the pair back toward the 1.170–1.175 area.
Across the Atlantic, UK GDP for October surprised on the softer side, contracting 0.1% month-on-month, driven by weakness in manufacturing. This supports bets on a broader BoE rate-cut trajectory next week, with roughly 22 basis points priced in. The pound remained relatively steady this morning, though early trading hints at slight pressure toward 0.878 EUR/GBP.
Frantisek Taborsky
CEE: Quiet end to the week before the central bankers' meet
The region is set for a quiet Friday before a busy week ahead. Romania’s inflation held at 9.8% year-on-year, modestly above expectations but signaling a peak and a likely decline into mid-next year. The central bank is expected to hold rates for longer, with the first cut not anticipated until August next year. In Turkey, inflation expectations edged down from 23.5% to 23.4% over the one-year horizon, as anticipated after the November inflation decline, though the pace of decline remains slow.
Next week, the CEE scene will heat up again with the year’s final meetings of Hungary’s National Bank and the Czech National Bank. Both are expected to hold rates steady, though the NBH may publish a new forecast showing a lower inflation path, and the CNB is likely to reflect weaker November inflation and a softer inflation outlook due to lower energy prices for households.
The koruna has recovered after a small early-week sell-off driven by a stronger rate differential. EUR/CZK slipped to around 24.20 yesterday, with rate differentials suggesting a 24.25–24.30 range as the USD weakens post-Fed.
Frantisek Taborsky
TRY: Central bank cuts rates by 150bp amid softer inflation
At the final rate decision of the year, Turkey’s central bank delivered a larger cut of 150 basis points, compared with the 100 basis points eased in October, supported by softer headline inflation in November. The move lowers the policy rate to 38% from 39.5%, while the interest-rate corridor remains at 450 basis points.
The bank reiterated that future decisions will be data-driven and considered on a meeting-by-meeting basis, but provided little guidance on near-term actions. Looking ahead, inflation expectations, the outcome of 2026 minimum wage negotiations, and the planned automatic tax adjustments—promised by Finance Minister Mehmet Şimşek—will shape the outlook. Dollarisation concerns and reserve levels will also factor into policy.
Frantisek Taborsky
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