The dollar is on the verge of a "great December reset"

The dollar is on the verge of a "great December reset"

December has been a key month for the dollar: a busy schedule of meetings by the Federal Reserve, the European Central Bank, the Bank of England, the RBA, and the Bank of Canada, as well as US labor market and inflation reports, are turning the USD into a major source of global volatility.

Traders are actively reassessing future Fed decisions, increasing the range of movements in EURUSD, GBPUSD, and USDJPY, and increasing momentum in short-term strategies. The market is entering a period where every new figure could rewrite expectations for the entire year 2025.

December as a point of overload for global expectations

The currency market is approaching a period that often marks the year's final turning point. It's in December that fundamental factors converge: monetary decisions, annual forecasts, updated macroeconomic data, and political risk. As a result, the dollar begins to act as an indicator not only of the state of the US economy but also of nervousness in all other regions.

This December pattern is clearly visible in yield dynamics: any minor adjustment in Fed rate expectations is reflected in movements in Treasury bonds, and the interpretation of these changes is immediately transmitted to the currency market. Volatility is rising not only in major pairs but also in commodity-linked crosses. This is a cyclical phenomenon, and it will be particularly pronounced in 2025.

The increased uncertainty is also linked to the market's more aggressive revision of the pace of interest rate cuts in 2025. Market participants are literally "gambling" on the likelihood that the Fed will change its rhetoric, accelerate the easing cycle, or, conversely, signal a long-term horizon of high rates. These fluctuations are not a figment of the imagination, but rather a reflection of the current price action of Fed Funds futures. Every change of a few basis points increases interest in the dollar, and with it, the amplitude of candlestick movements.

The dollar is on the verge of a "great December reset"

Why Fed Expectations Became the Season's Main Driver

The main reason for the growing nervousness is the shift in the probability model for future rates. There is no clear consensus on how many times the Fed will cut rates next year. Some participants estimate at least two cuts, others one, and still others even consider keeping the rate unchanged while labor market pressures persist.
As the market tries to capture these probabilities, the dollar becomes a barometer of global sentiment.
If the market believes the Fed will be more accommodating, the dollar weakens, risk assets get a break, and commodity currencies begin to rise. If the opposite occurs—the dollar strengthens sharply—defensive buying returns to the market.
This pattern works every year, but in 2025, the revaluation dynamics became noticeably faster. This leads to an increase in short-term strategies: traders use volatility as an opportunity, not a hindrance.

The Impact of US Macroeconomic Reports: Why the Data Has Become More Dangerous Than Usual

The labor market, inflation, business activity index, and annual revisions are data that can change the dollar's trajectory overnight. The US remains the main source of surprises, and this is where deviations from expectations are possible.
If inflation is higher, the market will be forced to revise its rate cut expectations. If it is weaker, a scenario of accelerated easing opens up. In both cases, the range of dollar movements increases.
The EURUSD and GBPUSD pairs remain particularly sensitive. The European and British economies are experiencing limited consumer demand and moderate inflation, so any changes in Fed policy have a disproportionate impact on these pairs. Traders see this effect literally every session.

USDJPY and the Global Liquidity Phenomenon

The USDJPY pair is a separate trend. It has become the most sensitive indicator of global interest rate differentials. The Bank of Japan continues to take a cautious approach to policy normalization, creating a unique effect: any news from the US automatically translates into movement in the USDJPY.
This is particularly noticeable in December: the market is assessing the likelihood that Japan may be forced to adjust its policy if the dollar continues to strengthen. Such factors create increased turnover in the Asian trading session, which is traditionally considered a calmer one.

How December's turbulence is changing trader behavior

Rising volatility is leading to short-term strategies becoming more important than medium-term ones. Algorithms and manual traders are increasing their trading volumes as the market offers more entry and exit opportunities.
This effect is observed every time during periods of heightened attention to the Fed. Market participants catch micro-moves, operating in ranges that would be too narrow to be of interest at other times of the year.
December is becoming a testing ground for those who know how to harness speed. This is especially true as liquidity fluctuates before the holidays, and market reactions become more acute. The USD remains a key instrument for anyone who trades in sync with the news.

Why December 2025 Could Be a Turning Point

The main question is how deeply the market believes in the easing cycle. If December figures show a decline in inflationary pressures and labor market stability, the dollar could enter a phase of gradual weakening. If the data is hotter than expected, investors may revise their forecasts, and the USD will once again become a safe-haven asset.
In both cases, December presents a unique opportunity for traders. Because the market reacts not only to the data itself, but also to the Fed's interpretation of it. And it is this interpretation that will shape the dollar's trajectory in early 2026.

Grand total

The "Great December Reset" isn't an image, but a realistic description of how Fed rate expectations are shaped and how the dollar becomes the main volatility trigger. Traders are faced with a market where every piece of news can change the picture, and every candlestick reflects a battle of forecasts.
The USD is entering a period where its dynamics will determine not only the value of currencies but also the overall mood of financial markets. And it's precisely during these months that the market becomes most interesting for those who are adept at handling rapid movements and precise decisions.
By Claire Whitmore 
December 03, 2025

Join us. Our Telegram: @forexturnkey
All to the point, no ads. A channel that doesn't tire you out, but pumps you up.
FX24

Author’s Posts