US Dollar Forecast: Forex Friday - December 5, 2025

Ahead of a busy week for central banks, we have seen a bit of stabilisation in the dollar after enduring some selling pressure in the last couple of weeks. The feeling in the markets is that the Fed will probably trim rates by 25bp next week, but the story beyond that is still fogged by a backlog of data. So, traders are hesitant to push their luck with the dollar shorts too much. The wobble in the dollar after those soft ADP payrolls on Wednesday didn’t go anywhere, largely because job cuts that were reported the day after didn’t jump in the way the dollar bears had been expecting, with jobless claims also falling unexpectedly. Add in an ISM services print that shows the US economy is still expanding, one has to wonder how dovish the central bank will actually be next Wednesday.  Accordingly, traders are easing the gas on the dollar selling, and this allowing the major pairs to consolidate ahead of the release of the PCE inflation data shortly. This and next week’s release of Jolts Job Openings are among a handful of data releases left for the Fed to chew over. I doubt they will have any material impact on the US dollar forecast, barring a very strong or a very weak print in core PCE relative to expectations of +0.2% m/m.

 

Mixed week for US data

 

As mentioned, it’s been something of a mixed bag for US data this week, although traders are still almost fully expecting a rate cut from the Fed next week.

 

Yesterday saw initial jobless claims come in at 191K vs. 220K, which surprised everyone really. This was the lowest reading since September 2022, no less. What’s more, Challenger Job Cut fell 53% to 71K. This sort of data would usually be quite supportive for the dollar. But traders are realising that one or two beats does not mean a trend reversal.

 

Indeed, the trend for employment has not been great this year. This was highlighted by the release of the ADP private-sector payrolls report in mid-week, which was a real disappointment. In fact, it delivered one of its weakest readings since 2023: –32,000, compared with expectations of a modest +5,000 rise.

 

Unsurprisingly, that miss sent the US dollar sharply lower as traders ramped up expectations of a Federal Reserve rate cut, and the greenback hasn’t been able to regain its poise since, even though jobless claims and Challenger, plus the ISM Services PMI earlier in the week, all came in stronger than forecast.

 

Looking ahead: Core PCE and UoM coming up

 

Looking ahead to the start of the US session, the Fed’s favourite inflation measure - the core PCE index - is due at 13:30 GMT. This would ordinarily have been the big one, but in recent months markets have shifted their focus away from inflation and more towards the labour market. As such, it’s unlikely to alter expectations at this late stage, unless it deviates significantly from the expected +0.2% reading. Later on, at 15:00 GMT, the UoM consumer sentiment and inflation expectations will land, which may stir things up a little ahead of the weekend.

 

Week ahead: Central bank bonanza

 

We will have at least four major central bank meetings in the week ahead, and the most important one you feel is the Fed’s one on Wednesday.

 

• The Reserve Bank of Australia will kick off the central bank policy decisions on Tuesday, December 9. The Aussie dollar has been making good ground against other currencies in recent week as speculation grows that the RBA may keep policy restrictive for longer. That is mostly because of stronger household spending and improved trade data, while the truce in the trade war between the US and China have also helped support metals prices. So, we are expecting rates to be held at 3.60% On Tuesday.

 

• Ahead of the Fed, the Bank of Canada rate decision lands on Wednesday, December 10. After delivering 275 basis points worth of rate cuts, which was the most aggressive among G10 economies, the Bank of Canada halted rate cuts in October. It is now widely expected to hold policy unchanged, thanks to stable inflation and an improving economy. A recent Reuters poll of economists suggests the central bank will not deliver further rate cuts in 2026 either.

 

• The FOMC rate decision is also on Wednesday, with the policy decision at 19:00 GMT.  The FOMC meeting has been eagerly anticipated but the delayed non-farm payrolls and CPI, which will be released after the Fed rate announcement, means the markets appear fully convinced that a rate cut is coming. A 25 basis point cut is expected to take rates to 3.75% from 4.00%, and how the dollar reacts will now depend on how dovish or hawkish the soon-to-replaced Fed Chair is going to be at the press conference.

 

Effectively, there’s very little now between us and the Fed meeting next week. Yes, we still have non-farm payrolls and CPI to come, but both land after the FOMC rate announcement. Markets appear fully convinced that a rate cut is coming, and this is largely why the dollar has been weakening once again. Against this backdrop, there is no compelling reason for the dollar to stage a meaningful recovery. As such, we will maintain a modestly bearish US dollar forecast.

 

Technical dollar forecast: DXY probes 99.00 handle

 

 

The USD dollar forecast remains largely bearish from a technical viewpoint after the Dollar Index chart (DXY) broke below its bullish trend line that had been in place since September. We have now also moved back below the two moving averages I watch: 200-day simple and 21-day exponential. This indicates that both the long- and short-term trends have turned objectively bearish again. For now, support has been provided by the 38.2% Fib against the rally off the September floor, at 98.80. Should this level give way in the coming days then watch for a continuation lower towards the next Fib levels shown on the chart. Key resistance is now seen around 99.50 – prior support. Above that is the 100.00 level.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R