FX Market Shifts to Risk-Off Amid Fed Rate Cut Expectations Driven by Employment Data

This analysis is based on the December 1, 2025, Benzinga report [1] detailing the FX market’s shift to risk-off sentiment, driven by employment data that clarified Fed policy expectations. Market participants priced an 88% probability of a 25bps Fed rate cut in December (CNBC [4]), with major banks like J.P. Morgan revising their base case to a December cut due to recent “Fedspeak” and employment signals (ts2.tech [2]).

On December 1, U.S. equities exhibited mixed performance: the S&P 500 (+0.26%), NASDAQ Composite (+0.58%), and Dow Jones Industrial Average (-0.25%) [0]. This reflected a balance between optimism for a Fed rate cut and the emerging risk-off sentiment in the FX market.

In FX markets, the U.S. dollar was the weakest G10 performer, failing to sustain levels above the key psychological 100 mark (Benzinga [1]). The New Zealand dollar/Japanese yen (NZD/JPY) pair broke out of a five-month range, closing above 89 with bullish momentum, while the Euro/Australian dollar (EUR/AUD) pair tested support around 1.76 amid bearish signals [1]. A discrepancy arose between Benzinga’s report of dollar weakness and the USD Index ETF (UUP)’s 0.16% gain on December 1 [0], likely due to intraday price movements not captured in daily close data.

Key information gaps include specific details of the employment data catalyst (October/November BLS data was delayed by a government shutdown [3]) and intraday DXY data to confirm the dollar’s dip below 100 [0].

1. Cross-domain sentiment balance
   : The risk-off FX sentiment [1] contrasted with mixed equities performance [0], as investors weighed Fed rate cut optimism against near-term risk aversion.
2. Data delay amplification
   : Delayed BLS employment data [3] heightened market sensitivity to incremental employment signals, intensifying the impact of the risk-off shift.
3. Intraday vs. daily data limitations
   : The UUP ETF’s daily close gain [0] vs. Benzinga’s intraday dollar weakness report [1] underscores the importance of granular time-series data for understanding short-term market moves.

• Fed policy uncertainty
  : The Fed remains deeply divided, with some policymakers advocating for a rate hold [2], posing volatility risks around the December 10 meeting.
• Data-driven volatility
  : Upcoming ISM manufacturing (Dec 1), ISM services (Dec 3), and Non-Farm Payroll (Dec 12) reports [1] could dramatically shift Fed expectations, triggering market swings.
• Information gaps
  : Missing specific employment data and DXY intraday figures may lead to incomplete market driver interpretations.

• Rate cut equity support
  : A December Fed rate cut could sustain or enhance equity market momentum, particularly in rate-sensitive sectors.
• FX trading signals
  : Bullish NZD/JPY (above 89) and bearish EUR/AUD (testing 1.76) [1] may present short-term trading opportunities, pending further data confirmation.

• Event
  : FX market risk-off shift on December 1, 2025, linked to employment data and Fed rate cut expectations [1].
• Fed expectations
  : 88% probability of 25bps December rate cut (CNBC [4]).
• U.S. equities (Dec 1)
  : S&P 500 +0.26%, NASDAQ +0.58%, Dow -0.25% [0].
• FX movements
  : Dollar weak (Benzinga [1]), NZD/JPY >89 (bullish), EUR/AUD testing 1.76 (bearish) [1].
• Information gaps
  : Specific employment data, DXY intraday data, comprehensive FX pair movements.