Dollar Plummets, Gold Surges as Market Reprices Easing

Daily Market Insights – December 12, 2025 | Ultima Markets

Global markets extended their post-FOMC rally overnight as the U.S. Dollar tumbled and Gold surged, driven by a combination of dovish policy interpretation, worsening labor data, and renewed liquidity injections from the Federal Reserve. Despite elements of a “hawkish cut” within the dot plot, markets ultimately viewed the overall signal as leaning decisively toward further easing.

Post-FOMC Reaction: Dovish Undercurrents Take Control

As highlighted in yesterday’s analysis, the Fed delivered a hawkish cut but paired it with messaging that leaned dovish beneath the surface. Powell’s emphasis on growing labor-market softness and the rejection of future rate hikes as a baseline scenario amplified market expectations for continued policy easing.

This dovish tilt came into sharper focus after the latest labor market data.

Jobless Claims Jump: Labor Market Cooling Accelerates

Thursday’s U.S. Initial Jobless Claims release confirmed the weakening labor trend:

• 236K jobless claims, sharply higher than the 220K consensus
• Highest weekly rise since 2020
• Prior week revised to 192K, underscoring the magnitude of the jump

The data reinforced the narrative that the labor market is losing momentum more rapidly than the Fed previously anticipated. Traders immediately increased bets on deeper rate cuts for 2026, driving the Dollar sharply lower and boosting risk appetite.

Fed Resumes T-Bill Purchases: Liquidity Wave Pressures USD Further

Beyond the FOMC decision, the market received another dovish surprise as the Federal Reserve confirmed it will resume Treasury bill purchases, with operations beginning today, December 12. The program involves roughly $40 billion per month in short-dated T-bill purchases, with the first operation sized at $8.167 billion.

• The Fed noted that these purchases are intended to stabilize short-term funding markets, rebuild reserve balances that have gradually declined, and ensure smooth control of the policy rate within its target range.
• While not officially labelled as quantitative easing, the liquidity effect is similar: the Fed’s balance sheet will expand, and system-wide liquidity will improve.

This renewed liquidity injection immediately weighed on the U.S. Dollar, reinforcing the post-FOMC move. Assets sensitive to liquidity—particularly Gold and U.S. equity indices—found additional support as markets interpreted the operation as another sign that financial conditions will remain loose heading into 2026.

U.S. Dollar Outlook: Bearish Reversal Underway

The U.S. Dollar Index (USDX) has broken down decisively, ending its recent bullish consolidation and signaling a return to a bearish trend. The index has slipped to 98.00, its lowest level since October, confirming renewed downside momentum.

USDX, Daily Chart | Ultima Markets MT5

With the DXY now testing this key support, market attention shifts to potential short-term rebounds. Technically, any upward retracement is likely to be seen as a “sell the rally” opportunity, with major resistance forming near 98.70. On the downside, the next key support levels are at 97.50 and 96.30, the August low.

Gold: Bullish Breakout

Gold has broken out of its prolonged consolidation between 4,175–4,235, benefiting from U.S. Dollar weakness and declining yield expectations.

XAU/USD, Daily Chart | Ultima Markets MT5

On the technical front, this breakout opens the door for a bullish continuation. As long as XAU/USD holds above 4,235, any short-term dips may present attractive buying opportunities in line with the uptrend.

What to Watch Today

Today marks the final trading session of a pivotal week, with markets closely monitoring the continuation of the “Fed Pivot” trade as the first liquidity operations go live.

• Eurozone CPI (November): The Eurozone will release November CPI data, which could provide short-term direction for the euro. While the weaker U.S. Dollar supports the euro, any surprises in the data may trigger temporary pullbacks, though the overall impact is expected to remain limited.
• Fed Officials Speak: Several Federal Reserve officials are scheduled to speak today. Market participants will parse their comments for clues on the Fed’s future policy path and potential adjustments to the ongoing easing cycle.

Overall, investor positioning and risk-on flows—particularly those influenced by a softer dollar—will play a key role in driving intra-day momentum. The market will continue to digest the combination of dovish Fed messaging, soft labor data, and the renewed liquidity injections from the T-bill operations.

Disclaimer

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