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Hello everyone, today XM Forex will bring you "[XM Group]: Interest rate cut or market shock? The Federal Reserve is about to appear." Hope this helps you! Original content below:
Fed meeting focus
With risk assets including embattled cryptocurrencies still bidding this week, driven mainly by inflated expectations of a Fed rate cut, the countdown to the most crucial event at the end of the year is www.xmkacen.coming to an end. At 19:00 GMT, the Federal Reserve will announce its interest rate decision, and the market is confident that it will cut interest rates by another 25 basis points.
The Federal Reserve's extremely hawkish remarks, the strong obstacles to raising interest rates shown in the October meeting minutes, and the lack of clarity in data due to the federal government shutdown make it extremely unlikely that the Federal Reserve will cut interest rates in November. However, everything changed after New York Fed President Williams' speech on November 21, with a handful of data releases for November supporting - especially Wednesday's weak ADP report - that the probability of a rate cut jumped to 86%.
On Wednesday, the focus will also be on the dots and overall meeting rhetoric. In September, the dot plot predicted three interest rate cuts by the end of 2026, one more than in June. Given that the market currently expects 63 basis points of easing in 2026, there is a considerable likelihood of three rate cuts expected next year, which becomes the Fed's baseline scenario.
While any dot-plot adjustment is easy to rationalize, if a rate cut is announced, Chairman Powell will have to give a serious explanation, after all, he said at an October press conference that you should slow down when driving in fog. Using the “weaker labor market” argument could be seen as a superficial justification, once again undermining the Fed’s low credibility.
It is worth noting that these two points - the dot plot and the overall rhetoric of the meeting - may be less important to the policy outlook in 2026 than usual, because of the specialTrump has likely already chosen Powell's replacement. NEC Director Hassett seems to be the person to lead the Fed into the future (lower interest rates).
Markets have been preparing for the Fed meeting
It has been a relatively calm period, with volatility generally easing over the month, but things could change dramatically next week. Confirmation of expectations for a rate cut from the Fed, coupled with balanced to dovish rhetoric and a dot plot pointing to three rate cuts, will support the currently dominant but fragile risk appetite. Stocks and gold are expected to rebound, with the dollar struggling to reverse its current weakness. A strong break above 1.1700 for EURUSD and a new high would confirm the current short-term bullish trend.
The most intense market volatility is likely to occur in the rare scenario where the Fed keeps interest rates unchanged, which would deal a major blow to current expectations. The initial aggressive risk-off reaction, with stocks plunging and the dollar strengthening, may have only been tempered by Powell's overly dovish press conference and a dot plot predicting four rate cuts in 2026. Even so, the market may still feel betrayed and maintain bearish momentum. A break below 1.1572 for EUR/USD would be important, but only a break below the key 1.1500 area would offset the current short-term bullish trend.
Gold and oil are also paying attention to geopolitical developments
The Federal Reserve meeting is not the only situation next week. The gold and oil markets are waiting for developments in the situation between Ukraine and Russia. While the first round of talks with Trump representatives was considered productive, key points — particularly frozen Russian assets and occupied eastern Ukraine — could derail current efforts.
Gold prices continue to hover around $4,200, with dual tailwinds from a dovish Fed meeting and the high-profile breakdown of Ukraine-Russia talks that could push the precious metal towards a record high of $4,381.
Similarly, despite the OPEC+ alliance confirming current production quotas until the end of March 2026, oil has failed to materially rebound above the key downhill trend line. Positive developments, such as leaders of the United States, Russia and Ukraine preparing for trilateral talks, could push oil prices closer to the October low of $56.36 and closer to the four-year low of $55.60.
How hawkish does Australia Energy Reserve sound?
After three interest rate cuts in 2025, the likelihood of a dovish surprise on Tuesday is almost zero. Inflation has been stubbornly high, with the CPI rising slightly to 3.8% in October, and the trimmed mean not far behind. Despite a weaker third-quarter GDP report, partly due to weak consumption, Reserve Bank of Australia Governor Bullock remains concerned about rising inflationary pressures and labor market tightness.
Externally, the world's second-largest economy faces deflation despite numerous support programs and optimistic GDP forecasts for 2026. Improving economic momentum in China will benefit Australia and could bring tougher pressure.
The rhetorical differences between the Federal Reserve and the Reserve Bank of Australia played a key role in the rebound of the Australian dollar towards the 0.6610 range. Confirmation of central bank divergence next week could boost marketsThe market is heading towards the 0.6680 range, especially with Fed Chairman Powell opening the door to a rate cut in January 2026. Having said that, if Bullock and others can deliver a more balanced message, a pullback towards 0.6550 may be possible.
The central bank is expected to keep the powder dry
After raising interest rates by 100 basis points so far in 2025, the central bank is expected to keep rates unchanged on Wednesday. However, aside from a surprisingly strong third-quarter GDP report, there was little positive news, as this week's S&P Global PMI survey showed. But the main headwind facing the Canadian economy remains the deadlock in tariff negotiations with the United States, mainly involving products not currently covered by the USMCA agreement.
With more tariffs hanging over their heads like the Sword of Damocles, McCollum and others are likely to remain slightly dovish and reiterate their readiness to respond if the situation changes dramatically. Not surprisingly, USD/CAD has been trading sideways, mainly due to a weaker US dollar. A dovish bias at the Fed meeting and more balanced rhetoric from the central bank could open the door for a decline towards the late October low of 1.3887.
unchanged SNB will continue to remain vigilant
With consumer price inflation continuing to hover in negative territory, the Swiss National Bank is on the verge of danger. With a particularly weak third-quarter GDP report, negative annual PPI growth weighed heavily on the outlook, adding to pressure for a dovish bias on Thursday.
That being said, not all is bleak, with the recent PMI survey and October retail sales offering surprising upside. More importantly, the United States and Switzerland reached a trade agreement, with U.S. interest rates reduced from 39% to 15%, and Switzerland www.xmkacen.committed to investing US$200 billion until the end of 2028.
UBS President Schlegel recently reiterated the high threshold for negative interest rates, hoping to confirm the SNB's forecast of accelerated inflation in 2026. It is worth noting that the market is not indifferent to the negative interest rate talk, and the Swiss franc has stabilized against both the euro and the US dollar recently. Amid Thursday's dovish bias, the franc's short-term reaction will largely depend on the performance of the U.S. dollar. Interestingly, the convergence of the simple moving averages (USD/Franc) points to increased volatility ahead.
Is the Bank of Japan on the verge of a much-anticipated rate hike?
Since mid-November, the Bank of Japan’s www.xmkacen.comments have shown a hawkish tendency, and the latest reports indicate that the government has agreed to the Bank of Japan’s interest rate hike. Amid high inflation and some initial demand for positive wage growth, the BOJ is prepared to be confident that this move will not backfire in the future. The dollar continues to fall against the yen, taking advantage of the weakening dollar. The first support is expected to be in the 153.20-154.50 range.
The above content is all about "[XM Group]: Interest rate cut or market shock? The Federal Reserve is about to appear". It was carefully www.xmkacen.compiled and edited by the XM foreign exchange editor. I hope it will be helpful to your trading! Thanks for the support!
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