Relentless USD rally extends after Powell hints at slower pace of cuts

No sooner had I written today’s headline that “the USD rally was showing early signs of fatigue”, Jerome Powell hit the wires to force a quick edit. Citing a solid labour market and “remarkably good” recent economic performance, Powell bluntly said that “the economy is not sending signals that the US central bank needs to be in a hurry to lower interest rates”.

Not that it should need translating, but it diminishes odds of more rate cuts next year in the current climate. Especially when we’re all waiting to see just how inflationary Trump’s second term may be. The Fed funds futures curve was lower across the board, particularly in the second half of 2025 (lower prices imply higher yields).

Fed funds futures are still favouring a December cut with a 62.4% probability, but the potential for it to land in January instead also sits at 55.5%. The next cut could arrive in July according to the curve, but it is not particularly confident with just a 39% probability.

The USD rally could have a lot further to go

If we step back to admire the view, it is easier to appreciate that the USD rally could have a lot further to go. While the USD index is currently amid its best two-month performance in over a year, its year-on-year performance is just 5%—which is much lower than previous rate of change (12) peaks of approximately 9% to 23%. Trough to peak performance has reached between 24.1% to 32% over the prior three rallies, whereas the current rally from its lows is a modest 7.1%. Sure, there will be opportunities for pullbacks along the way, but if previous macro moves are to be repeated, then we could be looking at a USD index breaking to new highs above 112.

However, something to also factor in if the USD does continue to strengthen is whether Trump wants a strong dollar. While his policies may warrant a stronger dollar, he was vocal about not liking it during his first term.

USD/JPY reached a 4-month high (and reached my 126.20 target) ahead of Japan’s GDP figures released later today
USD/CHF hit a 4-month high and tagged my 0.89 target
USD/CAD closed above 1.40 for the first time since May 2020
EUR/USD tagged the 1.05 handle for the first time since October 2023 (which for now is holding as support)
AUD/USD saw its lowest daily close since April and is now less than 50-pips from the 64c handle
GBP/USD fell to a 4-month low and closed beneath the 1.27 handle

Events in focus (AEDT):

08:30 – NZ business PMI
10:50 – JP GDP, capex, private consumption
12:30 – CN house prices
13:00 – CN fixed asset investment, industrial production, retail sales, unemployment, NBS press conference
15:30 – JP industrial production, capacity utilisation
18:00 – UK GQP (Q3), industrial production, index of services, manufacturing production, trade balance
21:00 – EU economic forecasts
22:30 – ECB McCaul speaks
00:30 – US core retail sales
01:15 – US industrial production, manufacturing production, business inventories
02:00 – ECB Lane speaks

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.