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Wednesday, December 31, 2025
What’s happening: The US dollar rose on Tuesday as investors assessed the minutes released from the latest Federal Reserve meeting.
What happened: The minutes showed that Fed policymakers were divided about next year’s monetary policy.
Despite the gains on Tuesday, the greenback remains on course to record its weakest performance since 2017 this year.
Why it matters: According to the minutes from the meeting on December 9 and 10, Federal Reserve policymakers agreed to cut interest rates after a long debate over the risks to the US economy.
The minutes showed that the central bank expects only one rate cut in 2026, while markets were baking in projections of at least two cuts next year. There were also speculations of the central bank keeping rates on hold for the time being, until fresh reports signal easing inflation or a rise in unemployment.
Although the economic calendar remained light due to the New Year holidays, data released by the Federal Housing Finance Agency on Tuesday showed that US home prices surged at the slowest annual pace in over 13 years in October. The Case-Shiller home price index also rose by 1.3% year-over-year in October, slowing from 1.4% recorded in the previous month. The Chicago PMI jumped to 43.5 in December from 36.3 in November. The figure also beat market projections of 39.5.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose more than 0.2% to 98.24 on Tuesday. The index is down about 9.5% on the year, on track for its steepest decline in eight years due to speculations of rate cut, fiscal deficit concerns and rising political uncertainty.
The EUR/USD forex pair fell almost 0.2% to 1.1751 on Tuesday but has gained more than 13% year to date. The GBP/USD pair declined around 0.3% to 1.3469 but has added almost 8% for the year.
What to watch: Investors await the release of economic data on initial jobless claims (1730 UAE Time) and continuing jobless claims (1730 UAE Time) from the US today. Initial jobless claims, which declined by 10,000 from the previous week to 214,000 in the week ending December 20, are expected to rise to 220,000 in the recent week.
Context: Equity markets in China rose during the final trading session of the year.
Details: Data released today showed that China’s official NBS non-manufacturing PMI surged to 50.2 in December from 49.5 in November. This marked the strongest reading since August and topped market estimates of 49.8. The latest improvement signalled that China’s efforts to boost domestic demand through higher fiscal spending and supportive policy measures were working.
China’s official NBS manufacturing PMI jumped to 50.1 in December, from 49.2 in the previous month, beating market expectations of 49.2. It signalled the first growth in factory activity since March. China’s NBS composite PMI output index rose to 50.7 in December from 49.7 in November, recording the strongest reading since June.
Meanwhile, RatingDog China general manufacturing PMI climbed to 50.1 in December from 49.9 in the previous month, also beating market expectations of 49.8.
Industrial and Commercial Bank of China, CNOOC and Zijin Mining Group were the notable gainers during the session.
China’s Shanghai Composite index rose around 0.1% to 3,968.90 this morning, on track for its biggest annual rise since 2019.
What to watch: Investors await the release of economic data on China’s current account (1300 UAE Time) today. China’s current account surplus is expected to surge to a record $195.6 billion in the third quarter from $157.4 billion in the year-ago period.
Other Markets: European indices closed higher on Tuesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.75%, 0.57%, 0.69% and 0.60%, respectively.
Russia claimed that its latest nuclear-capable missile system has been moved into Belarus. The news sent the USD/RUB pair higher in forex trading this morning.
South Korea’s annual inflation rate fell to 2.3% in December from 2.4% in the prior two months, in-line with market estimates. However, the latest reading remained above the central bank’s target of 2% for the fourth consecutive month, which lent support to the USD/KRW forex pair.
Brazil added 85,900 formal jobs in November, up from 85,147 jobs in the previous month. The latest reading also topped market estimates of 75,000, which sent the USD/BRL pair lower in forex trading this morning.
Chile’s unemployment rate came in at 8.4% in the September–November period, up 0.2 pp year-over-year, lending support to the USD/CLP forex pair.
Macau’s trade deficit shrank to MOP 10.1 billion in November from MOP 10.3 billion in the year-ago period. However, the USD/MOP pair rose in forex trading this morning.
India’s government budget value (1430 UAE Time), South Africa’s balance of trade (1600 UAE Time), as well as US EIA crude oil stocks change (1930 UAE Time), gasoline stocks change (1930 UAE Time), and natural gas stocks change (2100 UAE Time).
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