December started with the usual seasonal dip-buying pattern, pushing all major equity indices higher. But the real story last week played out in the currency markets, where a meaningful rotation took hold as central bank expectations shifted and global risk appetite perked up.
The U.S. dollar spent most of the week getting beaten up by its G10 peers. The culprit? A string of economic data that made a December rate cut look increasingly inevitable. Softer private employment numbers, mixed labor indicators that weren't quite alarming, and the Fed's preferred inflation gauge dropping to its lowest year-over-year reading since May all pointed in the same direction: the Federal Reserve is cutting rates this month.
Even though longer-dated Treasury yields staged a bit of a comeback toward week's end, it wasn't enough to revive meaningful demand for the dollar. As risk sentiment improved, investors rotated into higher-beta currencies with more upside potential.
Not every currency benefited equally. The Swiss franc actually underperformed, reflecting a fade in defensive positioning as yields outside Switzerland ticked higher and equity markets held steady. The euro also traded heavy, struggling to rally even as the dollar softened. Investors remained cautious about the eurozone's sluggish growth outlook and limited yield advantage compared to other markets.
The Australian dollar, by contrast, absolutely surged to the top of the leaderboard. Markets latched onto the idea that the Reserve Bank of Australia might actually need to start tightening again in 2026. Governor Michele Bullock's comments to parliament about the danger of re-accelerating inflation gave traders all the narrative they needed to pile into the Aussie.
The Canadian dollar wasn't far behind, getting a lift from another strong labor market report that strengthened expectations the Bank of Canada will keep rates on hold well into 2026. Meanwhile, sterling continued benefiting from lingering optimism following the broadly well-received Autumn Budget.
