The US indices added to their gains for the fourth session, as US yields kept falling. The 2-year yield, for example — the part of the curve that captures the December Federal Reserve (Fed) expectations — fell straight to 3.45%. From today’s standpoint, an additional 25bp cut in December is largely priced in, with more than 80% probability attached to it.

Cherry on top: the news that Kevin Hassett could be the next Fed Chair further revived expectations that the Fed may adopt a lower-rate policy moving forward— in line with the White House’s wishes. Hassett is also pro-deregulation and friendly toward crypto, everything the risk markets adore! And with Powell’s term ending in May 2026 — and rumours of a nomination before the end of the year — markets are already picturing a Fed that’s softer on rates, lighter on rules and a bit more welcoming to the digital-asset world. The expectation is that there would be 2–4 more rate cuts in 2026, on top of the one anticipated to land in December.

What could go wrong? When the Fed cuts rates — or even before it does — markets react by pulling yields lower. Lower yields reduce borrowing costs. Cheaper borrowing helps companies finance their projects, boosting growth. And lower yields also lift valuations because the rate at which you discount future revenues falls, making those future revenues worth more today. The lower the yields, the higher the growth expectations and the higher the valuations. This is why Trump wants the Fed to lower yields so badly.

But this transmission mechanism — Fed cuts → lower market yields → easier financing — is not guaranteed. That’s the catch. If the market decides that cutting rates is not the right call — that it could revive inflation and require future hikes — yields can rise even after the Fed cuts. This is exactly what happened in September 2024. Remember: within hours, the Fed expectations suddenly swung toward a 50bp cut... and yields spiked after that decision. The Fed then had to pause cuts for a full year.

So whether the Fed cuts rates in December is only half the question. The other half is whether it’s the right thing to do. And we won’t know, because we don’t have the inflation data — and that data is expected to arrive the week after the Fed decision. So even if the Fed cuts, if inflation surprises to the upside the following week, yields could jump higher and the expectation of those extra 2–4 cuts could evaporate — weighing on risk appetite. Conclusion: Fed expectations should be taken with a pinch of salt.

Good news: if you celebrate Thanksgiving, your turkey dinner will cost around 5% less this year compared to last. Turkey prices are down roughly 16%, enough to offset the increase in vegetables and general groceries.

Anyway, market mood is fine but the risk of a potential policy mistake should remain at the back of your mind as we walk into the Fed decision next month. The US dollar softened below the 200-DMA on the back of easing Fed bets. But the dovish expectations may have run slightly ahead of themselves, and the dollar index could find support near the 98.85/99 range — the major 38.2% Fibonacci retracement and the 50-DMA — before attempting to recover some of this year’s heavy losses. In the medium run, the US dollar outlook remains negative.

Back to the short run: the recent weakness of the dollar was helped by recoveries in the yen and sterling. But for both currencies, gains remain fragile. In Japan, Takaichi’s spending and borrowing plans leave the yen with no other reasonable or natural path than south. And for sterling, the post-Budget rebound will likely be challenged by softer Bank of England (BoE) expectations.

So, diving into the UK economics: yesterday’s Budget announcement went much better than many — including myself — expected. Everyone was braced for drama, volatility and even a few tears to spice it up. But none of it materialised. Apart from the OBR accidentally releasing its forecast an hour early, the measures were largely in line with market expectations and were warmly welcomed by gilt markets.

We heard plenty of tax rises — about £26bn, though most only kick in around the election year. Reeves opted for a softer stance on benefits, but financed by more people paying taxes. She announced a decent fiscal headroom: investors were seduced.

But a bleak setup for productivity and growth means that the UK will increasingly rely on financial markets to finance government operations. And that means investors — not voters — end up determining how much the government can spend and how much pain people in the streets must endure. The only way to break this cycle is to grow as much as you spend. I’d say there’s a better chance of unicorns invading the skyline.

The good news: gilt yields have fallen sharply after what was meant to be the most feared Budget in years, and cable is extending gains above 1.32. But again, the BoE now has the green light to cut rates in December. That will cap sterling’s upside — though only as much as the USD and the Fed bets allow.