DBG Markets: Market Report for Dec 19, 2025

Shifting Global Narrative After “Super Thursday”; Whats Next for Dollar, Pound and Yen？

The global market narrative has shifted meaningfully following a pivotal “Super Thursday,” where softer-than-expected U.S. inflation data and key central bank decisions reshaped expectations for the Federal Reserves 2026 policy trajectory.

U.S. CPI Strengthens the Case for a Fed Pivot in Q1 2026

The November U.S. Consumer Price Index (CPI) delivered a clear downside surprise. Headline inflation cooled to 2.7% (vs. 3.1% expected), while Core CPI eased further to 2.6% (vs. 3.0% expected), reinforcing the disinflation narrative.

This cooling trend has provided Federal Reserve doves with stronger justification to argue for an earlier policy response. With inflation pressures easing and the labor market showing visible signs of deterioration—unemployment rising to 4.5%–4.6% in recent readings—the Fed increasingly faces pressure to act.

Although the Feds latest dot plot signaled only one rate cut in 2026, market expectations have shifted decisively. Futures pricing now suggests more in easing cycle, with rate cuts increasingly expected in the first half of 2026, rather than later in the year.

With Core CPI now approaching the Feds 2% target, markets are beginning to price in a terminal policy rate around 3.00%–3.25% by mid-2026.

U.S. Dollar Reaction: Initial Dip, Tentative Stabilization

The U.S. Dollar Index (DXY) initially weakened following the softer CPI release, as the data reinforced expectations of an eventual Federal Reserve pivot. However, the Greenback managed to regain footing shortly after, suggesting that a significant portion of the disinflation story had already been priced in—particularly following earlier weak Non-Farm Payrolls data.

USD Index, H4 Chart

With the dollar reclaiming ground above the 98.00 level, a near-term rebound remains possible. That said, a decisive break below the 98.00–97.80 zone would likely signal a resumption of bearish momentum.

BoEs Cautious Cut

The Bank of England (BoE) concluded its final meeting of 2025 with a rate cut that highlighted growing policy divergence with global peers, while maintaining a distinctly cautious stance.

· The BoE cut the benchmark rate by 25 basis points to 3.75%, the lowest level since early 2023.

· The decision passed by a narrow 5–4 vote, with Governor Andrew Bailey casting the tie-breaking vote in favor of easing.

· Baileys commentary: While acknowledging that disinflation is now “established,” the Governor emphasized that further easing will be approached cautiously, describing future cuts as a “closer call” as policy rates move toward neutral.

GBPUSD Outlook

Sterling initially staged a relief rally toward the 1.3450 area, as the close vote and cautious guidance were interpreted as a “hawkish cut.” However, the pair remains technically vulnerable, particularly if the U.S. Dollar continues to stabilize following the CPI release.

GBPUSD, H4 Chart

From a technical perspective, repeated rejections near the 1.3450 resistance—tested three times—suggest a lack of sustained bullish momentum, with sellers still dominating at current levels.

Bank of Japan Preview: Markets Await Clearer Signals

The final major volatility catalyst of the week comes from the Bank of Japan (BoJ), which concludes its two-day policy meeting today.

With core inflation holding around 3% and wage growth continuing to accelerate, the BoJ appears increasingly confident in moving further away from its long-standing ultra-accommodative stance. Markets have largely priced in a 25-basis-point rate hike to 0.75%, which would mark the highest policy rate in Japan in nearly three decades.

USDJPY Outlook

USDJPY, Daily Chart

From a technical perspective, USDJPY is consolidating near a major resistance zone around 156.70–157.50, reflecting a market in wait-and-see mode ahead of the BoJ decision.

Bottom Line for Fridays Market

Fridays market tone is likely to remain cautious and data-sensitive following a pivotal “Super Thursday” that reinforced the theme of slowing inflation but uneven policy normalization across major central banks. Softer U.S. CPI has strengthened expectations for a Fed pivot in early 2026, keeping the medium-term bias on the U.S. Dollar tilted lower despite scope for short-term stabilization or technical rebounds.

In FX markets, policy divergence now the dominant driver. The Bank of Englands cautious cut failed to deliver a decisively dovish signal, leaving GBP vulnerable to renewed downside if U.S. Dollar stability persists. Meanwhile, the Bank of Japan represents the key near-term volatility risk; its guidance will determine whether USDJPY breaks lower on a hawkish surprise or stages a “sell-the-news” rebound if normalization signals fall short of market expectations.