The global monetary easing trend is approaching its end in 2025. During the final intensive central bank decision-making week of the year, the widespread "braking" among developed economies has become increasingly evident, with major central banks diverging significantly in their policy paths—adding new uncertainties to next year's markets.
On Thursday, December 18, the Bank of England (BOE) and the European Central Bank (ECB) will announce their rate decisions, followed by the Bank of Japan (BOJ) on Friday. Central banks in Thailand, Indonesia, Sweden, Norway, Mexico, Russia, and Hungary will also release their latest rate decisions next week.
The most striking signal comes from Japan. Markets widely expect the BOJ to deliver a landmark rate hike this Friday, marking a sharp contrast to the global rate-cutting theme of the past year.
Meanwhile, European central banks are treading more cautiously. A Bloomberg survey shows economists unanimously predict the BOE will cut rates this week, but this could be one of the final steps in its easing cycle. The ECB, however, is expected to hold rates steady and potentially upgrade growth forecasts, with markets watching closely for any hints of a hawkish pivot.
This backdrop follows the Federal Reserve's "murky outlook" after its latest rate cut. As other developed economies pause or end easing cycles—and Japan even prepares to hike—the Fed risks "going it alone" if it continues cutting, reshaping global capital flows and asset pricing logic.
**BOJ: Rate Hike Imminent** The BOJ's decision is this week's focal point. Bloomberg reports widespread expectations that Governor Kazuo Ueda's policy board will raise the benchmark rate to 0.75% on Friday—the first hike since January. All BOJ watchers surveyed by Bloomberg anticipate this move.
Supporting the decision, Monday’s BOJ Tankan survey is expected to show large manufacturers’ confidence improved further in Q4, justifying tightening. Japanese authorities have already signaled preparations for a hike. Additionally, November core CPI (due Friday) is forecast to hold at 3.0% YoY, paving the way for the hike.
**ECB on Hold, BOE’s "Final Cut"?** Contrasting Japan, the BOE is expected to ease—but likely as a last gasp. A Bloomberg economist survey shows unanimous expectations for a Thursday cut. The key question is whether Governor Andrew Bailey, who dissented last meeting, will now support it. Analysts broadly see this as among the BOE’s final easing steps, signaling a policy shift.
The ECB, meanwhile, is projected to hold steady. Bloomberg Economics’ ECBspeak index shows hawks dominate, virtually ensuring no December move. Markets will scrutinize President Christine Lagarde’s remarks and updated quarterly forecasts for tightening clues. Sweden, Norway, and Czech central banks are also expected to stand pat.
**Fed to "Cut Alone"?** The Fed recently cut 25 bps as expected, with markets pricing in continued 2026 easing. JPMorgan and Citi predict another January cut, judging the cycle unfinished. Goldman and Barclays note hawkish FOMC language aimed to "balance" the cut and avoid over-easing signals. Citi, Morgan Stanley, and JPMorgan all see the first 2026 cut in January, with Citi expecting a March follow-up, Morgan Stanley eyeing April, and JPMorgan foreseeing a pause thereafter.
**Policy Divergence: Developed Braking vs. Emerging Accelerating** Global monetary policy is fracturing. As developed economies wind down easing, others press ahead. Thailand’s central bank (BOT) is expected to cut 25 bps Wednesday, while views split on Indonesia’s BI. In Latin America, Chile and Mexico may cut amid economic strains, whereas Colombia could hold at 9.25% after better inflation data. Russia may also cut Friday, but likely by just 50 bps (vs. prior larger steps).
This "two-speed" landscape signals a complex 2026 for global markets, demanding investor readiness for widening policy gaps.
**2026 Dollar Downturn Inevitable?** With the Fed seen easing further in 2026 while the ECB, BOJ, and others lean hawkish, Goldman Sachs warns policy divergence will hit FX markets, with dollar depreciation pressures in focus. Wall Street broadly expects Fed cuts to weaken the USD in 2026, especially if non-U.S. economies recover, denting dollar asset appeal.
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