Central banks took center stage this week, delivering a quick lesson on how shifting policy divergence can send currency traders scrambling to adjust positions.

The Federal Reserve’s Wednesday rate cut became the week’s defining moment—not just for the quarter-point reduction itself, but for Chair Powell’s surprisingly characterization of inflation as primarily tariff-driven and transitory. That messaging triggered broad dollar weakness that persisted through Friday, even as some Fed officials pushed back with hawkish commentary.

Meanwhile, European Central Bank members made waves by suggesting rates have reached a floor, the Reserve Bank of Australia hinted at potential February tightening, and the Swiss National Bank firmly rejected negative rates despite weak inflation. The result? A week where the Swiss franc rallied to the top of the leaderboard while the yen—despite an imminent BOJ hike—finished dead last, highlighting how fully priced expectations can undermine even hawkish positioning.

Let’s break down how each major currency navigated this turbulent stretch and what catalysts drove the action.

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USD Pairs

The dollar kicked off the week on solid footing, shaking off early Asian weakness to mount a sustained rally ahead of the London open through Monday’s European session. This strength arrived without obvious catalysts, suggesting traders were positioning defensively ahead of Wednesday’s Federal Reserve decision, with the greenback finding support alongside weaker risk sentiment and rising bond yields.

That cautious positioning proved prescient as the dollar’s choppy Tuesday session—bouncing on stronger-than-expected JOLTS data before fading into the afternoon—gave way to Wednesday’s decisive breakdown. The Federal Reserve delivered its widely expected quarter-point cut during the US afternoon, but Chair Powell’s dovish framing triggered the greenback’s sharpest losses of the week. His characterization that “tariffs are causing most of the inflation overshoot” and expectation that their impact would “fade next year” with goods inflation peaking in Q1 undermined the hawkish case for holding rates steady, even as the FOMC’s unprecedented three dissents highlighted internal divisions.

The dollar’s post-FOMC weakness accelerated through Thursday’s Asian and London sessions despite a brief technical bounce overnight. The Swiss National Bank’s expected hold at 0% provided minimal support, with USD/CHF declining 0.73% as broad dollar weakness dominated. The greenback extended losses during the US morning session following weekly jobless claims surging to 236,000 versus 205,000 expected—reinforcing Powell’s Wednesday emphasis on labor market concerns and market expectations for additional 2026 rate cuts beyond the Fed’s projected single move.

Friday brought modest stabilization as the dollar recovered from Thursday’s near eight-week low, helped by hawkish Fed commentary during the US session. Cleveland Fed’s Hammack advocated for “slightly more restrictive” policy given elevated inflation, while dissenter Schmid reiterated price pressure concerns. Thirty-year Treasury yields climbed to three-month highs, providing late-week support. Still, the damage was done—the dollar closed as the second-worst performing major currency for the week, with the post-FOMC dovish repricing clearly outweighing Friday’s hawkish pushback.

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EUR Pairs

The euro spent the week consolidating early before capitalizing on dovish Fed messaging and emerging policy divergence with the ECB.

Through Wednesday’s U.S. session, EUR traded mixed and sideways despite Monday’s stronger-than-expected German industrial production (1.8% versus 0.4% forecast), and Tuesday’s solid trade balance data providing no support before relative central bank positioning weighed on the single currency.

The narrative shifted Wednesday during the London session as ECB officials Simkus and Villeroy signaled rates could remain steady, with President Lagarde suggesting December growth projections might be revised higher. This hawkish tilt likely supported EUR through midday before Wednesday’s U.S. session brought the decisive catalyst—Chair Powell’s dovish characterization of tariff-driven inflation as transitory triggered broad dollar weakness that lifted EUR/USD, though the euro declined against traditional safe havens as risk appetite surged.

EUR extended gains Thursday as dollar weakness persisted, with weaker U.S. jobless claims during the U.S. session reinforcing USD weakness. Friday’s U.S. session saw EUR rebound on net to finish as the week’s second-best performer, likely supported by growing policy divergence expectations between the Fed and the ECB.

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GBP Pairs

Sterling spent most of the week treading water as traders positioned cautiously ahead of major central bank decisions, only to stumble hard at the finish line on disappointing UK growth data.

The pound opened the week stuck in choppy ranges through Monday’s Asian and London sessions, likely weighed down when BOE MPC member Taylor’s comment about keeping their “foot on the brake a little bit still” reminded markets that UK policymakers weren’t in any rush to ease further. That defensive tone carried into Tuesday, where weaker-than-expected UK BRC retail sales (1.2% y/y vs 1.5% prior) likely reinforced concerns about consumer momentum, capping GBP quickly and likely contributing to the late Tuesday pullback.

Wednesday’s Fed decision marked a turning point during the U.S. session, as Chair Powell’s dovish characterization of tariff-driven inflation as transitory lifted rate-sensitive currencies like sterling. Thursday brought relatively muted activity through London hours, though BOE Governor Andrew Bailey’s comments about continuing to reduce the central bank’s balance sheet possibly provided modest technical support—even as GBP closed mixed, higher against USD and commodity currencies but lower against defensive majors.

Friday’s London session delivered the week’s most decisive move lower, as October GDP contracted 0.1% month-over-month for a second consecutive decline, with services output falling 0.3%—likely reflecting persistent budget uncertainty. Markets immediately priced in increased easing expectations for the December 18 BOE meeting, positioning sterling as the day’s worst performer.

Bullish Headline Arguments

• BOE members favor a measured approach to further rate cuts
  • BOE member Ramsden thinks “gradual removal of policy restraint” remains appropriate
  • BOE Deputy Gov. Lombardelli stressed the “upside risks to inflation” while arguing for a cautious approach to further rate cuts
  • BOE member Dhingra said disinflation is on track, doesn’t see “a particular need to be so restrictive.”
  • BOE member Mann is skeptical that headline CPI will decelerate to target by mid-2027
• RICS U.K. House Price Balance for November 2025: -16.0% (-20.0% forecast; -19.0% previous)
• U.K. Manufacturing Production for October 2025: 0.5% m/m (0.5% m/m forecast; -1.7% m/m previous); -0.8% y/y (-1.2% y/y forecast; -2.2% y/y previous)

Bearish Headline Arguments

• BOE member Taylor expects inflation to fall to target ‘in the near term’
• UK BRC retail sales for November: 1.2% y/y (2.5% forecast, 1.5% previous)
• Financial Times reported that the U.K. pledged extra $2 billion NHS spend to avert Trump tariffs
• U.K. GDP for October 2025: -0.1% m/m (0.0% m/m forecast; -0.1% m/m previous); 1.1% y/y (0.9% y/y forecast; 1.1% y/y previous)

• U.K. NIESR Monthly GDP Tracker for November 2025: -0.1% (0.1% forecast; 0.0% previous)

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CHF Pairs

The Swiss franc emerged as the week’s strongest major currency, rallying steadily from Monday’s U.S. session through Thursday before maintaining gains into Friday’s close.

The franc started with mixed Monday trading, gaining against commodity currencies and yen while weakening versus euro, sterling, and dollar as markets positioned defensively ahead of the Fed decision. Swiss consumer confidence matching expectations at -34.0 didn’t provide much support, characterized by CHF’s move lower through the U.S. afternoon as Treasury yields climbed.

Tuesday’s session saw momentum shift decisively, with the franc advancing against nearly all majors as pre-FOMC caution intensified safe-haven demand. The rally accelerated sharply Wednesday during the U.S. session following the Fed’s 25-basis-point cut and Chair Powell’s dovish press conference, which triggered broad dollar weakness that likely lifted CHF to session highs across the board.

Thursday’s SNB decision reinforced the bullish tone—while policymakers held rates at zero as expected, Governor Schlegel’s emphatic rejection of negative interest rates despite downgraded inflation forecasts appeared to dampen easing expectations. The franc extended gains through the U.S. session as initial jobless claims weakness sparked USD weakness, potentially adding some flow to the franc.

Friday’s choppy session ultimately closed net positive, likely benefiting from risk-off flows as tech stocks tumbled and safe-haven positioning intensified.

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CAD Pairs

The Loonie kicked off the week on shaky ground, giving back Friday’s employment-driven gains as falling oil prices and cautious positioning ahead of central bank meetings likely pressured the commodity currency through the Monday London and U.S. sessions. WTI’s tumble and rising dollar demand on higher yields likely intensified CAD’s decline into the weekly open close.

Pre-Fed and BOC jitters kept the Loonie choppy through Tuesday and into Wednesday, though CAD briefly found support from a positive JOLTS report during the Tuesday U.S. afternoon before fading. The Bank of Canada’s expected hold at 2.25% Wednesday afternoon became the week’s pivotal moment—not for the decision itself, but for Governor Macklem’s characterization of rates at the “lower end of the neutral range” and refusal to rule out future cuts, which appeared to undermine the currency even as the Fed delivered dovish commentary hours later.

Thursday’s U.S. session marked a turning point when weaker-than-expected jobless claims (236K versus 205K forecast) triggered broad dollar weakness, possibly contributing to CAD’s rebound, particularly against its commodity currency peers after Australia’s disappointing employment report. The Loonie maintained this relative strength into Friday’s close despite choppy intraday action, finishing the week mixed with an arguably bullish lean as recovering commodity prices—especially copper’s record rally—and persistent USD softness likely provided late-week support that overshadowed domestic data misses in wholesale sales and capacity utilization.

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AUD Pairs

The Aussie opened the week in cautious territory, trading mixed through Monday’s Asian and London sessions as gold steadied and markets squared positions ahead of major central bank meetings. China’s record trade surplus above $1 trillion may have provided momentary support, though defensive positioning kept gains contained before renewed U.S. selling pressure emerged.

Tuesday’s Asian session delivered a shot of volatility for the Aussie when the RBA held rates at 3.60% as expected, initially triggering brief selling before Governor Bullock’s hawkish commentary sparked a sharp reversal to the upside. Her emphasis on upside inflation risks and signals that February could be a live meeting for potential tightening drove the Aussie sharply higher across the board, making it Tuesday’s strongest major currency.

That momentum proved short-lived. Wednesday’s Asian session brought China’s disappointing inflation data—monthly CPI at -0.1% versus +0.1% forecast and deeper PPI deflation—which appeared to undermine the comdoll heading into the Fed decision. Thursday delivered an even sharper blow during the Asian session when November employment plunged 21,300 versus expectations for a 5,000 gain, with the participation rate dropping to 66.7% from 67.0%, making the Aussie the day’s weakest major despite surging gold prices.

The week closed with Friday’s whipsaw—early Asian strength faded dramatically during the U.S. morning session, likely tracking tech’s collapse and hawkish Fed commentary that pushed yields higher.

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NZD Pairs

The kiwi entered the week with decent momentum, posting gains through Tuesday’s U.S. session, likely on China’s robust trade surplus during Monday’s Asian hours and the RBNZ’s relatively less dovish stance compared to global peers likely provided foundational support. The currency rode alongside the Aussie’s Tuesday Asian rally following RBA Governor Bullock’s hawkish February inflation warning, before consolidating through London.

Wednesday’s Asian session brought pressure as softer Chinese inflation data—headline CPI at -0.1% monthly versus 0.1% expected—weighed on the growth-sensitive currency, though NZD recovered approaching the FOMC decision. Powell’s dovish characterization of tariff-driven inflation sparked a late-session rally that lifted NZD against USD and commodity currencies, though it underperformed European majors.

The final two sessions turned decisively bearish. Thursday’s U.S. hours saw observable NZD losses correlating with Australia’s disappointing employment report. Friday’s Asian strength from solid domestic retail data quickly reversed as AI equity concerns and hawkish Fed dissenter commentary drove broad risk-off flows through the London and New York sessions.

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JPY Pairs

The yen’s week started with a puzzling contradiction—despite Finance Minister Katayama’s renewed complaints about “one-sided, rapid moves,” JPY weakened through Monday’s Asia session and continued sliding into Tuesday’s U.S. trade. The selloff seemed to stem from a timing problem: markets had already priced in the expected BOJ rate hike for the following week, leaving little room for hawkish repricing, while other major central banks were simultaneously striking more hawkish tones.

Governor Ueda’s Tuesday comments about “somewhat rapid” rate rises and potential bond buying intervention likely reinforced perceptions that the BOJ would remain cautious with tightening, possibly amplifying JPY weakness through London hours. The currency found its footing during Wednesday’s Asian session as Chinese deflation data sparked safe-haven flows, though the reversal proved temporary as FOMC positioning adjustments took hold during London trade.

Thursday’s U.S. open brought JPY’s strongest rally of the week when disappointing jobless claims data dragged Treasury yields lower, though equity strength quickly unwound these safe-haven gains by the afternoon close. The currency resumed its decline through Friday’s Asian and London sessions as wide rate differentials reasserted dominance, with only a brief spike during U.S. equity hours—coinciding with tech sector weakness—providing temporary relief. JPY finished as the week’s worst-performing major currency, underscoring the challenge of hawkish expectations that were already fully priced in.

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