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Ultima Markets Daily Market Insights – December 19, 2025
Today marks the culmination of a pivotal week for central banks. With US inflation data confirming the Fed’s dovish path and the Bank of England delivering a contested rate cut, attention now turns to Tokyo for a potentially historic move by the Bank of Japan.
US CPI: The “Dove’s Gift” & Fed Outlook 2026
Yesterday’s delayed November US CPI report provided the clarity the Federal Reserve—and the market—needed to reinforce expectations for a continued easing cycle into 2026:
Headline CPI cooled significantly to 2.7% YoY (from 3.0% in September)
Core CPI slipped to 2.6% YoY (from 3.1%).
The undershoot surprised markets, removing the inflation barrier for the Fed and effectively “greenlighting” further rate cuts. Markets now anticipate the Fed may continue its easing cycle in Q1 2026, with the Fed Funds Rate projected to fall to a terminal range of 3.00%–3.25%.
Fed Target Rate Probabilities in December 2026 | Source: CME FedWatch
The confirmation of disinflation reinforces the bearish trend for the US Dollar. With real yields expected to compress further, the USD is vulnerable to a breakdown below 98.00, signaling the end of the “higher-for-longer” narrative.
USDX, H4 Chart | Ultima Markets MT5
The Dollar has seen a near-term rebound around 98.00, suggesting the move was largely priced in. Any rebound below the key resistance zone of 98.80–99.00 will likely remain a “sell the rally” opportunity.
The broad outlook for the USD remains bearish, particularly if upcoming BoJ decisions trigger further volatility in the FX market.
Bank of England (BoE): A “Hawkish Cut”?
The Bank of England delivered a nuanced message yesterday, cutting rates while signaling that future easing will be conditional—earning the market label of a “Hawkish Cut.”
The Decision: The BoE cut the Bank Rate by 25 bps to 3.75%. However, the vote was deeply divided (5-4 split), with four members voting to hold rates, citing persistent service inflation risks.
The “Cautious” Stance: Despite the cut, the BoE’s tone was restrictive. The MPC warned that future cuts are “not guaranteed” and will become a “closer call” moving forward, effectively pushing back against aggressive easing bets.
While the rhetoric was restrictive, market positioning still reflects expectations for a more accommodative path, with traders pricing in 2–3 cuts for 2026, targeting a Bank Rate near 3.25% by mid-year.
GBPUSD, H4 Chart | Ultima Markets MT5
GBPUSD rejected resistance near 1.344 three times, signaling limited near-term upside.
Despite the cautious BoE tone, recent sluggish UK data suggest that further accelerated cuts may still be expected in 2026, the immediate upside for Sterling remains capped.
What to Expect from BoJ Today?
The Bank of Japan delivered its widely anticipated rate hike today, the Board voted unanimously to raise the uncollateralized overnight call rate to 0.75% (from 0.50%). This marks the highest policy rate in Japan since September 1995.
The central bank cited a “moderate recovery” in the Japanese economy and the need to address persistent cost-push inflation as primary drivers for the move. The decision confirms that the BoJ is shifting focus from fighting deflation to managing inflation sustainability.
Despite the hike, the initial market reaction has been counter-intuitive—a classic “sell the fact” move. The USD/JPY actually edged higher (Yen weakened) toward 156.00 immediately following the announcement.
Why? The hike was fully priced in by markets. Investors are interpreting the move as a “dovish hike,” anticipating that future rate increases will be extremely gradual into 2026–2027. The focus now shifts entirely to Governor Kazuo Ueda’s press conference.
Traders are waiting to see if he signals a pause or hints at another hike in early 2026. Unless Ueda sounds surprisingly hawkish, the Yen may struggle to sustain gains today.
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