SINGAPORE, 3 December 2025 — The U.S. dollar paused on Wednesday as traders shifted attention to risk assets and began positioning for 2026, where expectations of aggressive Federal Reserve rate cuts and a potential new Fed chair are setting the stage for renewed dollar weakness.
The greenback’s quiet session came amid a rally in other markets. The Australian dollar briefly hit a three-week high of US$0.6576 after GDP data came in slightly softer than expected. The euro climbed above its 50-day moving average, trading at US$1.1629 early in Asia.
Bitcoin Steals the Spotlight as Risk Appetite Returns
Market sentiment was dominated by cryptocurrency strength. Bitcoin surged about 6% overnight, topping US$91,000, sparking broader appetite for risk assets.
The yen held steady at 155.70 per dollar, supported by rising bets that Japan will raise rates this month, a stark contrast to the U.S., where markets are pricing an 85% chance of a rate cut at next week’s Federal Reserve meeting.
Elsewhere:
- Sterling stayed firm at US$1.3222
- The Swiss franc held at 0.8022 per dollar
- The New Zealand dollar hovered at US$0.5730
Rate Cuts Expected to Erode Dollar Strength Into 2026
Expectations are mounting for roughly 90 basis points of U.S. rate cuts before end-2026, narrowing the global rate gap and weighing on the dollar’s outlook.
Investor sentiment was also influenced by political developments. White House economic adviser Kevin Hassett, seen as supportive of faster rate reductions, is reportedly a leading contender for the Federal Reserve chair nomination. Former Fed economist, Hassett is viewed as close to President Donald Trump, who said he would announce his pick in early 2026.
Strategists increasingly see downside risks for the dollar:
- Deutsche Bank’s Tim Baker said the dollar could fall around 2% in December, a month where it has shown a decade-long tendency to weaken.
- OCBC analysts in Singapore also expect a softer dollar next year as U.S. cuts narrow interest rate differentials.
“The thesis is pretty simple,” said Spectra Markets President Brent Donnelly.
“The market is long dollars with a run-it-hot Fed Chair coming, an already bad fiscal situation, high nominal rates that are about to fall, a seasonal tendency for USD weakness, and interest rate differentials at the wides.”
