BAF NEWS

TL;DR

December 2025 Fed rate cut odds moved into the 80–87% range this week as traders positioned for a December move. Evidence shows momentum is now tied to private surveys, notably ISM and ADP, before the decision window. Consequently, FX and bond volatility may rise into the fed meeting December 9-10.

December 2025 Fed rate cut odds surge

December 2025 Fed rate cut odds have climbed to roughly 80–87% as futures markets leaned harder into a December move, per Reuters and bank trackers. J.P. Morgan shifted its call to a 25 bp cut in December, while CME FedWatch probabilities imply a broad market consensus in that range. Evidence shows traders accelerated these bets after softer post‑shutdown reads and rising confidence that the timing aligns with the policy window.

Follow the money: futures curves now embed the cut base‑case into year‑end. However, the spread pricing still leaves room for a surprise if data firm up.

Visuals suggested: line chart of CME FedWatch probabilities by meeting date.

Key data next week: ISM and ADP before the Fed

Investors will focus on the ISM manufacturing and services reports for a cleaner read on momentum. In parallel, an ADP employment report preview will anchor payroll expectations into the meeting week. According to available reports, these prints are the hinge for rates and FX in the near term.

Moreover, the ISM manufacturing and services reports can signal whether demand softness is broadening beyond goods. The ADP employment report preview, meanwhile, will shape expectations for private payrolls and wage trends.

Visuals suggested: table comparing ISM components, ADP payrolls, and subsequent market moves.

Dollar slides as cut bets build

The U.S. dollar weakened sharply as the market leaned into a December cut. By some accounts, this is the U.S. dollar worst week since July, reflecting how sensitive the currency remains to policy expectations. Meanwhile, stocks and yields saw cross‑currents as positioning adjusted.

Still, the U.S. dollar worst week since July underscores a simple cause/effect chain: higher cut odds, lower rate differentials, softer dollar. That setup can shift quickly if data surprise higher.

Timeline: From data delays to the December 9–10 decision

With official releases curtailed after a 43‑day shutdown, investors pivoted to private proxies. That vacuum raised the signal value of the ISM manufacturing and services reports and the ADP employment report preview. The contradiction: markets look confident, yet the inputs are unusually thin.

As the clock runs down to the fed meeting December 9-10, traders will refine probabilities meeting by meeting. Therefore, each interim datapoint carries more weight than usual.

How markets are positioning ahead of the Fed

Stocks consolidated while Treasury moves reflected a recalibration of term premium and near‑term rate path. Follow the money: dealers report hedging around the December node as CME FedWatch probabilities cluster near a cut. J.P. Morgan’s shift to December reinforced the consensus, yet options boards still price tail risk around the statement and guidance.

Additionally, bond desks highlight event‑risk around the services survey and ADP. If services stays resilient, some expect a modest pullback in cut pricing.

What the December 2025 Fed rate cut odds mean for FX and bonds

When December 2025 Fed rate cut odds rise, the sensitivity to surprises rises too. A soft ISM or ADP would likely pressure front‑end yields and keep the dollar on the back foot. Conversely, firm prints could lift yields and challenge the latest dollar slide.

In FX, beta currencies tend to rally when cut odds firm and growth fears don’t dominate. But if growth looks too soft, risk sentiment can flip. In rates, CME FedWatch probabilities can reset quickly on a single release, so traders should expect fast repricing intraday.

Visuals suggested: intraday volatility bands for 2‑year yields and DXY on ISM/ADP days.

Risks and counterpoints: data gaps and volatility

The data gap after the shutdown increases reliance on private surveys. That adds noise and potential revision risk. Therefore, even accurate calls may carry wider error bars than usual.

The contradiction: high conviction in December, but fewer official inputs to validate. As a result, false signals could spark outsized swings across FX and the front end.

What’s Next: ISM, ADP, and the Fed’s December 9–10 meeting

Next week, watch the ISM manufacturing and services reports for breadth, orders, prices, and employment. Pair that with the ADP employment report preview to gauge whether private hiring stabilizes. Then, all eyes shift to the fed meeting December 9-10, where guidance and vote splits could matter as much as the move.

December 2025 Fed rate cut odds will likely update in real time as releases hit. Evidence shows traders respond first to surprises in prices‑paid, orders, and private payrolls. If the data soften, December looks locked, if not, the market may trim exposure into the decision.

Visuals suggested: dashboard with ISM/ADP headline vs. surprise indices and immediate market reactions.