Global markets kicked off the final week before Christmas with a strong rally, as investors grew increasingly optimistic about potential interest rate cuts by the U.S. Federal Reserve. This optimism, driven by signs of a softening American economy, sent Asian stocks soaring and pushed gold to a new record high.

The rally follows the release of U.S. economic data indicating that the unemployment rate rose to 4.6% in November, a four-year high, while consumer price inflation slowed to 2.7%. For investors, these figures are a clear signal that the U.S. economy is cooling, which could compel the Federal Reserve to lower borrowing costs early in the coming year to stimulate growth. Major investment banks now widely expect the Fed to deliver at least two rate cuts in 2026.

Why a US Decision Matters in Kenya

Decisions made by the U.S. central bank have significant ripple effects on the Kenyan economy. A cut in U.S. interest rates typically weakens the dollar, which can provide a much-needed boost to the Kenyan Shilling. This strengthening of the local currency makes crucial imports like fuel, food, and industrial goods cheaper, potentially easing the cost of living for ordinary Kenyans.

Furthermore, a weaker dollar reduces the burden of servicing Kenya's foreign debt, much of which is denominated in dollars, including loans for the Standard Gauge Railway (SGR). Lower rates in the U.S. also make Kenyan assets, such as stocks and bonds, more attractive to foreign investors seeking higher returns, which could drive more capital into the country.

Markets Respond with Vigour

The renewed hope for monetary easing sparked a wave of buying across Asia. In Japan, the Nikkei 225 jumped 2.10% to trade above the 50,000-point mark. Elsewhere, South Korea's Kospi gained 1.83%, and Hong Kong's Hang Seng and China's Shanghai Composite also saw positive gains.

The optimism also had a dramatic effect on precious metals:

• Gold: The price of spot gold surged to a record high of over $4,383 per ounce (approx. KES 565,000 at current exchange rates).
• Silver: Silver prices also saw a significant surge, outperforming gold this year with a 132% rise.

The rally also comes as investor fears about unsustainable spending in the Artificial Intelligence (AI) sector begin to ease. While some analysts remain cautious, pointing to high valuations, the broader market sentiment appears to be that the economic backdrop for 2026 is positive.

While the latest U.S. data has buoyed markets, some economists have warned the figures might be temporarily distorted by data collection disruptions from a recent government shutdown. Federal Reserve officials have signalled a cautious approach, waiting to assess more data before committing to a path for 2026. For now, Kenyan businesses and consumers will be watching closely, as the actions of the U.S. central bank could provide a welcome economic tailwind in the new year.