Fed rate cut fully priced in. Focus shifts to Fed's updated dot plot and Powell's commentary for 2026 monetary policy guidance.
Mixed performances in US stock market and FX as FOMC looms
Key takeaways
- Markets are steady ahead of today’s key FOMC meeting, where a 25-bps cut is nearly fully priced in and futures point to additional easing through 2026.
- US equities remain in short-term uptrends despite recent consolidation, while FX action shows a strong AUD and a persistently weak JPY.
- Traders are focused on the Fed’s updated economic projections and Powell’s commentary for guidance on the path of rates, growth, and inflation.
Market participants are in a “holding mode” as we await the most important event of the month, the last US Federal Open Market Committee (FOMC)’s monetary policy meeting for 2025.
Based on the latest data from the CME FedWatch tool, the Fed funds futures market has almost fully priced in (a 90% chance) that the Fed is likely to enact its third interest rate cut of 25 basis points (bps) later today to bring the Fed funds rate lower to 3.50%-3.75%.
Fed funds futures now imply at least two additional 25 bps cuts in 2026, pointing to a year-end policy rate of 3.00%–3.25%.
Hence, the focus today, along with the Fed Chair Powell’s press conference, will be on the release of the latest summary of economic projections (“dot plot”) that will highlight the latest updated median projections from FOMC officials on economic growth, inflation trend, unemployment rate in the US, and the Fed funds rate for 2026, 2027 and 2028, which in turn provides an indirectly form of monetary policy guidance.
The US stock market continued to consolidate for the second consecutive session on Tuesday, December 9 , with modest gains seen in the Nasdaq 100 and the small-cap Russell 2000, which rose by 0.2% each, while the S&P 500 (-0.1%) and Dow Jones Industrial Average (-0.4%) underperformed.
Despite this current bout of consolidation, all four major US stock indices are still trading above their respective 20-day moving averages, implying that their short-term uptrend phases remain intact.
In the FX market, a “K-shaped” performance has emerged with the AUD rallying and outperforming among the major currencies against the US dollar due to the hawkish monetary policy guidance from the RBA. In today’s Asia session, AUD extended its gains by 0.1% after a 0.3% return seen on Tuesday, 9 December, towards a three-month high at 0.6650.
At the end of the spectrum, the Japanese yen weakened for the third consecutive session against the greenback due to mixed messages from Bank of Japan (BoJ) Governor Ueda’s speech yesterday, in which he highlighted that the BoJ may plan to reinstate government bond buying if long-term JGB yields rise rapidly.
The USD/JPY rose by 0.6% to clear above the 156.00 psychological level to close at 156.89 on Tuesday, 9 December, and traded lower in today’s Asia session by 0.1% towards 156.65 at the time of writing in line with intraday gains seen across other major currencies: EUR (+0.2%), GBP (+0.2%), and CHF (+0.2%).
Our YouTube video above contains the latest intraday technical analysis on the US Wall Street 30, US Nas 100, US SPX 500, Hong Kong 33, Japan 225, Germany 30, EUR/USD, GBP/USD, AUD/USD, USD/JPY, Gold (XAU/USD), and West Texas Oil.
