Fed’s ‘Hawkish Cut’ Shakes Forex: Dollar Slips as Silver Hits Record High
Robert J. Williams
Beatrice Quinn
The US Federal Reserve delivered a widely expected 25‑basis‑point rate cut at its latest policy meeting, but its messaging signaled a tougher path for further easing, jolting forex and metals markets. The move has been described as a “hawkish cut” as officials cooled expectations for aggressive reductions in 2026, even while lowering rates again this year.
According to commentary based on the CME FedWatch tool, futures pricing now implies no clear majority expectation for another cut before April 2026, underscoring how much the market has scaled back hopes of a rapid easing cycle.
More than 12 hours after the announcement and press conference, market reaction remained mixed:
– The US dollar fell below key support levels, putting its long‑term bullish trend “into question.”
– The S&P 500 traded at its lowest level of the week, despite an initial post‑Fed bounce.[1]
– US Treasury yields moved lower, reflecting reduced long‑term rate expectations.[1]
This combination of weaker yields, a softer dollar, and cautious equity sentiment has set the tone for global trading on December 11.
Silver surges to record high as precious metals stay in focus
The standout mover has been silver, which “rose powerfully” to just below $63 per ounce, marking a new all‑time high before paring gains. The metal continues to lead the precious metals space, with trend and momentum traders seen favoring long positions.
Gold, while still below its recent peak, remains technically and fundamentally supported, with some analysts arguing that the broader precious metals complex still looks bullish in the wake of the Fed decision and a softer dollar backdrop.
Key takeaways for metals traders:
– Silver is in a strong uptrend and remains the lead momentum play.
– Gold is viewed as a potential follow‑on opportunity if the dollar’s longer‑term uptrend continues to erode.
– Lower real yields and a more cautious Fed path provide a supportive macro backdrop for both metals.
Key developments:
– EUR and JPY strength versus the USD points to unwinding of dollar‑long positioning after the Fed’s cautious guidance.
– The Australian dollar underperformance suggests investors are less willing to hold higher‑beta currencies amid policy and growth uncertainty.
– The USD/MXN pair is testing very long‑term lows, having printed a fresh 17‑month low a few hours earlier.
Some brokers are reportedly paying positive swap on short USD/MXN positions, making the pair attractive as a carry trade for traders aligned with the prevailing downtrend.
At the same time, USD/JPY remains structurally bullish on higher time frames. The pair recently posted a bullish engulfing candlestick and remains just below ¥156.00, with many trend traders still holding longs despite short‑term dollar softness.
Equities dip despite initial Fed boost
Although US stocks initially reacted positively to the Fed’s move, most major indices are trading lower on the day, a dynamic some analysts characterize as a bearish sign within an ongoing bull market.
The sequence has been:
– Immediate, modest boost in equities after the rate cut.
– Subsequent fade, leaving the S&P 500 at its weakest level of the week.
That pattern aligns with the idea that the Fed’s tone was less dovish than equity bulls had hoped, even if it did deliver another cut.
Central banks: Bank of Canada on hold, SNB decision in focus
The Bank of Canada left its policy rate unchanged at 2.25%, in line with expectations. The hold underscores a more measured approach relative to the Fed and suggests the BoC is comfortable pausing to assess how earlier easing flows through to the real economy.
Attention now turns to the Swiss National Bank, which is scheduled to deliver its policy decision later today and is widely expected to keep its key rate at 0%. Any surprise shift on rates or FX intervention language could have spillover effects for CHF pairs and broader European FX sentiment.
Labor data: Australia surprises slightly on the upside
On the macro front, the Australian unemployment rate remained at 4.3%, defying expectations for a rise to 4.4%. That small beat suggests the Australian economy is marginally more resilient than markets anticipated going into the release.
Separately, yesterday’s US Employment Cost Index came in at a 0.8% quarterly increase, a touch lower than expected. That reading will be interpreted as modestly positive for the inflation outlook, reinforcing the case for a cautious but ongoing easing bias from the Fed.
Traders are also watching for the latest US unemployment claims release later today, which could either support or challenge the Fed’s narrative of a labor market that is cooling but not collapsing.
Market impact and broader implications
The Fed’s “hawkish cut” has created an environment where directional conviction in the dollar is weaker, but rate‑differential and carry themes remain crucial:
– A softening but not collapsing USD is providing room for EUR and JPY to appreciate.
– High‑beta and commodity currencies like AUD are more vulnerable when risk appetite cools.
– Carry structures such as short USD/MXN are gaining attention as the pair probes multi‑month lows with positive swap incentives at some brokers.
– The precious metals rally, led by silver, is being reinforced by a combination of lower yields, softer dollar, and persistent macro uncertainty.
If the market continues to doubt the likelihood of meaningful additional Fed cuts in 2026, traders may increasingly favor pair‑specific themes—like policy divergence, carry, and relative growth—over a one‑way “strong dollar” or “weak dollar” narrative.
Outlook: data and central bank signaling will drive next leg
From here, the next decisive moves in forex and metals will likely hinge on:
– Incoming US labor and inflation data, which could either validate or undermine the Fed’s cautious outlook.
– The SNB decision and communication, particularly any commentary on the franc and FX intervention.
– Follow‑through in risk sentiment, as equity weakness and JPY/EUR strength hint at a potential shift away from aggressive risk‑on positioning.
For now, the Fed’s latest move has kept the easing cycle alive while reminding markets that 2026 cuts are far from assured—a combination that favors selective FX positioning and continued attention to metals, especially silver.
Beatrice Quinn’s Take:
The Fed’s “hawkish cut” is likely to keep FX markets choppy rather than directional, rewarding traders who focus on relative value and carry instead of broad dollar calls. If silver’s strength persists alongside a softer but still credible Fed, we could see increased rotation into hard assets and selective EM FX, while overextended USD/JPY longs remain vulnerable to deeper pullbacks.
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