Mixed affair in Europe after BoC, FOMC and SNB rate decisions

A mixed affair in Europe, following a Federal Reserve rate decision that many have perceived to be somewhat less hawkish than might have been the case. From a European perspective, the SNB maintained the central bank theme that has dominated the past 24-hours, keeping rates steady at 0% once again. Notably, the Swiss franc has been one of the best performing currencies of 2025, and the declines for USDCHF could well continue next year if Trumps appointments manage to undermine the Feds independence.

US markets largely enjoyed yesterday’s Federal Reserve meeting, although things are looking a little less rosy for the day ahead as a 11% decline for Oracle has tech valuation concerns back in the limelight today. The outperformance of the Dow compared with the Nasdaq did highlight the growing optimism around the US economy, with the Fed projections for 2026 growth hiked up from 1.8% to 2.3%. Inflation concerns also eased somewhat, with the bank downgrading expectations of the median core PCE price index for 2026 down to 2.5%. This is a clear sign that Trumps tariffs look to have essentially passed without any notable uptick in price pressures.

As for the headline news, the rate cut was accompanied by a dot plot which continues to outline just a single additional move lower in the year ahead. This flies in the face of market expectations, with the CME pricing a second later on in 2026. With Trump likely to appoint a dove into the chair role, there is an expectation that the more cautious approach could turn in the second half of 2026. Meanwhile, the Fed’s decision to start buying short-dated T-bills does alleviate some of the liquidity concerns that had built up over recent months. Kicking off tomorrow, their initial $40 billion package marks a period of expansion for a balance sheet that has been shrinking over the QT programme that recent ground to a halt. While the Fed have understandably framed this as a technical measure aimed at alleviating liquidity stresses, the weak dollar highlights the market response to a Fed that has so swiftly reversed course after only recently ending their QT programme.