Ahead Today
G3: US initial jobless claims, trade balance, and wholesale inventories
Asia: BSP policy decision
Market Highlights
The Fed cut rates by 25bps in a 9-3 vote, acknowledging a gradual cooling of the labour market. Fed Chair Powell also highlighted significant downside risks to the labour market. On inflation, the Fed noted that goods inflation could peak in Q1 2026, assuming no new tariffs are introduced, though lingering risks to inflation remain.
Powell signalled that rate hikes are not the base case, with FOMC members divided between holding rates steady and cutting rates. The updated median dot plot shows only one rate cut in 2026, a stance that is notably less dovish than market expectations for about 55bps of easing (or slightly more than two cuts). Powell emphasized that the Fed is “well positioned” to wait and see how the US economy evolves. Despite this, the US dollar softened broadly post-meeting. Looking ahead, the policy outlook in H2 next year could be complicated by a change in Fed leadership, adding uncertainty for markets.
In Japan, market expectations for BOJ rate hikes have pushed 2-year JGB yields to their highest level since 2007, while fiscal concerns have driven 30-year JGB yields to record highs. Meanwhile, November PPI held steady at 2.7%yoy, and the upcoming Tankan survey (due 15 December) is likely to show further improvement in sentiment among large manufacturers and service providers, supporting the case for gradual rate normalization in Japan.
Regional FX
A softer US dollar backdrop should broadly underpin the performance of Asian currencies. In Singapore, we expect measured resilience in the SGD, supported by a modestly appreciating S$NEER policy stance, recent CNY stability, and a lower Fed funds rate. USDSGD declined 0.4% yesterday, in line with the weaker DXY index.
In China, November CPI rose 0.7%yoy, matching market expectations and signalling some reflationary momentum, partly driven by higher food prices. However, PPI fell 2.2%yoy, underscoring supply-side disinflationary pressures.
Meanwhile, we expect the BSP to cut its benchmark policy rate by 25bps to 4.50%, amid slowing growth and contained inflation. USDPHP has climbed above the 59.00 threshold, suggesting the peso may face headwinds into 2026.