Ahead Today
G3: Germany industrial production, US Oct core PCE index
Asia: China trade
Market Highlights
The FOMC rate decision will be the key focus this week, setting the tone for Asian FX as we head into 2026. Markets have largely priced in a 25bps Fed rate cut, while the US dollar remained under modest downside pressure last week. The key element for markets will be the Fed’s forward guidance on its policy trajectory beyond December, as investors look for clarity on the pace and extent of easing in the year ahead.
Market expectations for next year’s Fed rate cuts have been trimmed slightly to 58bps from 64bps at the start of the month. This adjustment reflects persistent inflationary pressures, with September’s core PCE inflation holding at 2.8%yoy, still above the Fed’s 2% target, and a modest improvement in consumer sentiment. The University of Michigan consumer sentiment index rose to 53.3 in December from 51.0 in November, signalling a tentative recovery from recent months of weakness.
Meanwhile, Japan’s final Q3 GDP confirmed a 0.6%qoq contraction, but this is unlikely to derail expectations for a BOJ rate hike in December. BOJ Governor Ueda has hinted at a rate hike in his latest remarks. Labour cash earnings rose 2.6%yoy in October, up from 2.1% in September, reinforcing the case for policy normalization despite near-term growth softness.
Regional FX
Asian currencies broadly strengthened against the US dollar last week amid a softer US dollar, though INR and PHP notably underperformed regional peers, declining by 0.6% and 0.5% respectively. The Reserve Bank of India (RBI) cut its repo rate by 25bps to 5.25% in a unanimous decision, maintaining a neutral policy stance and showing little resistance to recent rupee weakness. In the Philippines, attention turns to the BSP meeting this week, where a potential policy rate cut could weigh on the PHP.
In Singapore, we expect USDSGD to remain capped below the 1.3100 level in the near term, with year-end levels likely to settle within the 1.2900–1.3000 range. Continued resilience in the Chinese yuan, coupled with a softer US Dollar Index (DXY), should provide support for SGD. Looking ahead, China’s November trade data could show export growth of around +4% YoY alongside modest import gains, signalling export resilience despite global tariff headwinds. Meanwhile, China’s CPI data will offer insight into domestic demand conditions, where a pickup in inflation could ease deflation concerns and underpin CNY stability.