Forex News

• The Euro strengthens against the US Dollar amid broad-based weakness in the US currency.
• The European Central Bank’s message of monetary stability supports the single currency.
• Political uncertainty and rate-cut expectations continue to weigh on the US Dollar.

EUR/USD trades around 1.1740 on Monday at the time of writing, up 0.25% on the day. The pair benefits from renewed interest in the Euro (EUR) in an environment marked by a weaker US Dollar (USD), as investors adjust their positioning amid ongoing macroeconomic and monetary uncertainty in the United States (US).

The current momentum is largely driven by persistent pressure on the Greenback. Markets remain concerned about a gradual slowdown in the US economy, as several recent indicators point to cooling conditions in the labor market. These signals reinforce expectations of monetary easing by the Federal Reserve, limiting the USD’s rebound potential. In addition, political and fiscal uncertainty in Washington continues to undermine investor confidence in the US Dollar.

On the European side, the Euro is supported by a more stable backdrop. The European Central Bank (ECB) maintains a wait-and-see stance after confirming a steady policy outlook last week. ECB President Christine Lagarde stated that monetary policy is in a “good place” and that interest rates are likely to remain unchanged for a prolonged period. This message of continuity, combined with slightly upgraded growth and inflation projections, improves market visibility and supports the single currency.

Several European Central Bank officials echoed this view earlier in the day, highlighting a more balanced assessment of risks to growth and inflation in the Eurozone, despite economic activity remaining subdued. This contrasts with the more uncertain US environment contributes to the upside bias in EUR/USD.

In the near term, investors remain focused on upcoming US macroeconomic releases, particularly growth and inflation data, which could influence Federal Reserve (Fed) policy expectations and, in turn, the direction of the US Dollar. For now, the relative clarity around European Central Bank policy compared with the Federal Reserve continues to favor the Euro against the US Dollar.

• Gold jumps to fresh record highs as escalating geopolitical tensions lift safe-haven demand.
• Dovish Fed expectations and a softer US Dollar continue to underpin the broader bullish bias
• Technically, XAU/USD maintains a bullish bias above rising moving averages despite an overbought RSI.

Gold (XAU/USD) surges to fresh record highs on Monday, as escalating geopolitical tensions bolster safe-haven demand. At the time of writing, XAU/USD is trading around $4,413, up about 1.70% on the day, after breaking above the October 21 peak near $4,381.

The precious metal is on track for its strongest annual performance since 1979, with prices up nearly 67% year to date. The rally has been fuelled by a dovish Federal Reserve (Fed) stance, broadly weaker US Dollar (USD), sustained central-bank buying, and record inflows into Gold-backed ETFs.

Looking ahead, markets continue to anticipate further monetary policy easing by the Fed into 2026, as recent data indicate cooling inflationary pressure and a softer US labor market. A lower interest-rate environment typically supports non-yielding assets such as Gold.

As markets drift toward the year-end and liquidity thins with major data releases largely drying up, Gold may consolidate in the near term or see mild profit-taking after the recent surge before attempting another push into uncharted territory.

However, a handful of US economic releases on Tuesday may still provide short-term direction, with attention on the ADP Employment Change four-week average, the delayed preliminary Q3 Gross Domestic Product (GDP) report, Durable Goods Orders, Industrial Production, and Consumer Confidence.

Market movers: Rising geopolitical tensions and Fed signals keep markets cautious

• On the geopolitical front, renewed Iran-Israel tensions are reinforcing risk-off sentiment. Reports suggest Iran may use large-scale military drills as a potential cover for offensive operations. Israeli officials have also warned that Tehran may be reconstituting nuclear enrichment facilities previously targeted by US strikes in June. Meanwhile, Israeli Prime Minister Benjamin Netanyahu is expected to brief US President Donald Trump on possible options to strike Iran’s missile program again.
• Tensions between the US and Venezuela have also escalated sharply. US forces have intercepted and pursued another oil tanker near Venezuelan waters after seizing two tankers last week. The latest action follows an order by President Donald Trump to impose a blockade on sanctioned Oil tankers entering and leaving Venezuela.
• US led Ukraine peace talks showed mixed progress over the weekend amid ongoing conflict. US, European, Ukrainian, and Russian envoys held discussions in Miami, with US special envoy Steve Witkoff describing the talks as “productive and constructive,” particularly around the development of a 20-point peace plan and potential security guarantees for Kyiv. Still, no major breakthrough emerged, as Moscow continues to hold firm on territorial demands.
• On the monetary policy front, Markets are currently pricing in two Fed rate cuts in 2026. However, Fed officials remain divided on the need for additional monetary easing following cumulative cuts of 75 basis points (bps) this year. Cleveland Fed President Beth Hammack, a future 2026 FOMC voter, signaled in a Wall Street Journal interview that she sees no need to adjust interest rates for several months ahead, arguing that inflation remains a key concern even after recent easing moves and suggesting the central bank could hold the policy rate in its current 3.50%-3.75% range into the spring.
• A softer US Dollar is providing additional tailwind by making the metal cheaper for overseas buyers. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 98.46, easing after climbing to a one-week high on Friday.

Technical analysis: XAU/USD holds bullish bias despite overbought RSI

XAU/USD resumes its broader uptrend, climbing back into uncharted territory after navigating a healthy period of correction and consolidation, defying earlier concerns about an overstretched rally.

On the daily chart, Gold continues to trade comfortably above its 21-day Simple Moving Average (SMA) near $4,244 and the 50-day SMA around $4,154, both of which slope higher and reinforce the bullish bias. As long as prices hold above these dynamic supports, dips are likely to attract buyers.

The Relative Strength Index (RSI) stands near 77, firmly in overbought territory, suggesting strong upside momentum, though also signalling scope for short-term consolidation or shallow pullbacks. Meanwhile, the Average Directional Index (ADX) rises to 29.53, reinforcing the bullish backdrop.

• The Pound Sterling trades higher against its major currency peers after the release of the UK Q3 GDP figures.
• Revised UK Q3 GDP data show that the economy grew QoQ in line with preliminary estimates of 0.1%.
• Fed’s Hammack argues against reducing interest rates further.

The Pound Sterling (GBP) attracts bids against its major currency peers and jumps 0.45% to near 1.3440 on Monday, following the release of the United Kingdom (UK) Q3 Gross Domestic Product (GDP) data. The Office for National Statistics (ONS) confirms that the economy grew at a quarterly pace of 0.1%, in line with preliminary estimates.

On an annualized basis, the UK economy also grew 1.3% as preliminary data showed.

The impact of the revised Q3 GDP figures is expected to be short-lived on the British currency, while investors remain concerned about how the economy is performing in the last quarter of the year.

Last week, the Bank of England (BoE) stated in its monetary policy statement that the staff forecast “zero growth in Q4 GDP”, following an interest rate cut by 25 basis points (bps) to 3.75% with a 5-4 majority vote. In October, the economy surprisingly declined by 0.1%, the data showed earlier this month.

Going forward, the major driver for the Pound Sterling will be market expectations for the BoE’s monetary policy outlook amid a light economic calendar week. In the monetary policy announcement on Thursday, the BoE reiterated that the rate path will remain “gradually downwards”.

Pound Sterling outperforms US Dollar ahead of flash US Q3 GDP data

• The Pound Sterling rises 0.45% to near 1.3440 against the US Dollar (USD) during the European trading session on Monday. The GBP/USD pair gains as the US Dollar faces slight pressure, with investors turning cautious ahead of the preliminary United States (US) Q3 Gross Domestic Product (GDP) data scheduled for Tuesday.
• As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.25% lower to near 98.50.
• Investors will pay close attention to the US GDP data to get fresh cues on the current state of the economy. The numbers are expected to show that the US economy grew at an annualized pace of 3.2%, moderately from 3.8% in the second quarter.
• Signs of slowing US GDP growth might force traders to curtail bets supporting more interest rate cuts by the Federal Reserve (Fed) in the near term.
• Currently, there is a 22.5% chance that the Fed will cut interest rates by 25 bps to 3.25%-3.50% at the January meeting, the CME FedWatch tool shows.
• Fed dovish expectations remain slim even as the US Consumer Price Index (CPI) data for November showed on Thursday that price pressures grew moderately. As measured by the CPI, the headline and the core inflation cooled down to 2.7% and 2.6% year-on-year (YoY), respectively.
• Over the weekend, Cleveland Fed President Beth Hammack stated in a podcast interview with The Wall Street Journal (WSJ) that interest rates should remain at their current levels at least until the spring, adding that the latest inflation data was distorted by the Federal shutdown.

Technical Analysis: GBP/USD sees more upside above 1.3500

GBP/USD trades higher at 1.3415 at the start of the week. The 20-day Exponential Moving Average (EMA) slopes upwards, reinforcing a bullish bias as price holds a clear premium over the average. A sustained hold above the 20-day EMA at 1.3329 keeps the topside outlook intact.

The 14-day Relative Strength Index (RSI) at 62.89 confirms firm momentum without overbought signals.

Pullbacks could be absorbed by dip-buying near the 20-day EMA while the broader trend favors continuation. Looking up, the pair could strengthen on a decisive break above the horizontal resistance plotted from the October 17 high at 1.3471.

(The technical analysis of this story was written with the help of an AI tool.)

DBS Bank research team provides insights into the economic outlook for Asia and ASEAN in 2026, highlighting resilience despite global trade tensions.

Resilience in Asia's economic outlook

"A year that began with unprecedented fear about global trade and multilateral rules-based order is ending with guarded relief. It has turned out to be a test of resilience that the global economy in general and trade intensive Asia has passed well so far."

"US trade restrictions are not turning out to be as blanket and burdensome as had been feared initially. Tariffs are coming in various shapes and forms, characterised by varying rates, exemptions, and grace periods; all subject to endless negotiations. The appetite of US consumers has not been dented by these developments, it seems. Consequently, most Asian countries have enjoyed strong exports growth to the US this year."

"Our acronym of the year, TOTUS, Trade Outside the United States, takes us to the second factor explaining surprising resiliency."

"As separate paths are charted, investment flows get recalibrated. The likes of Malaysia, Singapore, and Vietnam are already seeing record FDI; we see more potential in 2026 and beyond. Monetary conditions are constructive; food and fuel inflation not an issue. The region is stepping into the new year with reduced anxiety."

• The Indian Rupee trades firmly against the US Dollar near 90.00 at the start of the week.
• The RBI has intervened to support the Indian Rupee, and FIIs have remained net buyers in the December 17-19 period.
• Fed’s Hammack stresses against further interest rate cuts, citing that November’s CPI data was distorted.

The Indian Rupee (INR) holds onto last week’s gains against the US Dollar (USD) at the start of the week. The USD/INR pair clings to losses near 90.00, driven by the Reserve Bank of India’s (RBI) intervention in the spot and non-deliverable forward (NDF) market to support the Indian Rupee.

Last week, the RBI sold US Dollars in the opening trade on Wednesday and in closing trading hours on Friday to cushion the Indian Rupee against its one-way depreciation against the USD. The Indian currency has declined almost 6.5%, so far this year, against the US Dollar.

The major drivers behind strength in the USD/INR this year are strong demand for US Dollars by Indian importers and the continuous outflow of foreign funds from the Indian stock market amid trade frictions between the United States (US) and India.

In the cash market, Foreign Institutional Investors (FIIs) have remained net sellers in seven out of 11 months this year. So far this month, FIIs have also offloaded their stake worth Rs. 19,857.37 crore. However, some buying has been seen among overseas investors in the last three trading days. FIIs have remained net buyers in only the past three trading days this month, and have bought a stake worth Rs. 3,598.38 crore.

Daily Digest Market Movers: Investors await flash US Q3 GDP data

• The US Dollar struggles to regain ground against the Indian Rupee after posting a fresh three-week low near 89.50 on Friday, even as the former trades broadly stable against its major peers amid expectations that the Federal Reserve (Fed) will not cut interest rates in its January policy meeting.
• At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades marginally lower around 98.60.
• According to the CME FedWatch tool, the probability of the Fed reducing interest rates by 25 basis points (bps) to 3.25%-3.50% in the January meeting is 22.5%.
• Fed dovish expectations for the January meeting have not accelerated despite the US Consumer Price Index (CPI) data for November showing that inflationary pressure cooled down.
• The data on Thursday showed that the headline inflation cooled down to 2.7% year-on-year (YoY) from 3% in October. In the same period, the core CPI – which strips off volatile food and energy items – cooled down to 2.6% from estimates and the prior reading of 3%.
• Over the weekend, Cleveland Fed President Beth Hammack stated in a podcast interview with the Wall Street Journal (WSJ) that there is no need to change interest rates at least until the spring, while stressing the need for evidence supporting progress in inflation towards 2%. She added that the significance of November’s inflation reading is limited as the data was distorted due to the government shutdown.
• “My base case is that we can stay here for some period of time, until we get clearer evidence that either inflation is coming back down to target or the employment side is weakening more materially,” Hammack said.
• Going forward, the major trigger for the US Dollar will be the preliminary Q3 Gross Domestic Product (GDP) data, which will be published on Tuesday.

Technical Analysis: USD/INR faces pressure near 20-day EMA

USD/INR trades cautiously near 90.0440 at the start of the week. The 20-day Exponential Moving Average rises, though price has slipped marginally below it at 90.1601, tempering near-term upside after a firm climb. The rising trend line from 83.9122 underpins the broader bias, with support aligned near 89.1107.

The 14-day Relative Strength Index (RSI) at 51 (neutral) confirms momentum has cooled from recent overbought readings.

Upside traction would improve on a sustained close back above the 20-day EMA that could press the price to revisit the all-time high near 91.50. Looking down, a break beneath the ascending trend line could open the door to a deeper pullback toward the November low of 88.49.

(The technical analysis of this story was written with the help of an AI tool.)

European Central Bank (ECB) General Council member and Governor of the Croatian National Bank said in the European trading session on Monday that risks to inflation and growth are more balanced, and the next move on interest rates could be in either direction.

Market reaction

The comments from ECB’s Vujcic seem insignificant on the EUR/USD. As of writing, the pair holds onto early European session gains around 1.1715, as of writing.

• AUD/USD gains sharply to near 0.6640 as the Australian Dollar outperforms across the board.
• The Fed is unlikely to cut interest rates in the January meeting.
• Investors await RBA minutes, and the preliminary US Q3 GDP data.

The AUD/USD pair is up 0.45% to near 0.6640 during the European trading session on Monday. The Aussie pair strengthens as the US Dollar (USD) underperforms its peers, despite traders remaining confident that the Federal Reserve (Fed) will not cut interest rates in the first policy meeting of 2026.

During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0025% lower to near 98.45.

According to the CME FedWatch tool, the probability of the Fed reducing interest rates by 25 basis points (bps) to 3.25%-3.50% in the January meeting is 22.5%.

Fed dovish expectations remain slim even as the United States (US) Consumer Price Index (CPI) data for November came in lower than projected.

Going forward, investors will pay close attention to the preliminary Q3 Gross Domestic Product (GDP) data, which will be published on Tuesday. Market participants will closely monitor the data to get fresh cues on the current economic status. The US GDP growth is expected to come in at 3.2% on an annualized basis, lower than 3.8% in the second quarter of the year.

Meanwhile, the Australian Dollar (AUD) outperforms its peers as de-anchored consumer inflation expectations have increased hopes that the Reserve Bank of Australia (RBA) could hike interest rates in the near term. On Friday, the data showed that Consumer Inflation Expectations accelerated to 4.7% from the prior reading of 4.5%.

For fresh cues on the Australian interest rate outlook, investors will focus on minutes of the RBA policy meeting, announced on December 9, in which the central bank left its Official Cash Rate (OCR) steady at 3.6%.

HSBC analyzes the implications of the Bank of England's (BoE) recent rate cut on the British pound (GBP). The report notes that the BoE's ongoing easing cycle may lead to the GBP underperforming against other currencies like the AUD and NZD, which are expected to see rate increases.

BoE cuts rates, GBP faces challenges

"The Bank of England (BoE) cut its policy rate by 25bp to 3.75% on 18 December, marking the sixth cut in the current easing cycle."

"The meeting’s tone was rather hawkish, as the guidance indicated that 'judgements around further policy easing will become a closer call.'"

"As the BoE is likely to continue to lower rates in 2026, the GBP will probably underperform against other G10 currencies whose policy rates are already at neutral levels or are set to rise, such as the AUD and NZD."

• EUR/JPY stays near 184.70, virtually unchanged, as investors digest recent central bank messages.
• The European Central Bank keeps a reassuring tone, pointing to a stable monetary policy for a prolonged period.
• The Japanese Yen retains a bullish bias thanks to its safe-haven status and expectations of further rate hikes in Japan.

EUR/JPY trades around 184.70 on Monday at the time of writing, showing little change on the day, in an environment shaped by diverging signals from the Eurozone and Japan. Investors remain cautious, caught between the stability of the European monetary framework and geopolitical and fiscal uncertainties that continue to support demand for the Japanese Yen (JPY).

On the European side, the European Central Bank (ECB) has kept its key policy rate at 2.0% since June. At its last week's meeting, the central bank confirmed a policy pause accompanied by upward revisions to its growth and inflation forecasts. ECB President Christine Lagarde said that monetary policy is in a “good place” and that interest rates are likely to remain unchanged for a prolonged period. The new projections show inflation staying below 2% over the next two years before returning to target in 2028, reinforcing expectations of a lasting status quo.

This message is echoed by several European Central Bank officials. Peter Kažimír, Governor of the National Bank of Slovakia, said earlier in the day that risks to the economic outlook are now more balanced, while remaining cautious about rather subdued long-term growth prospects. Meanwhile, Gediminas Simkus, a member of the Governing Council and Governor of the Bank of Lithuania, noted that economic growth in the Eurozone has improved but remains sluggish, with inflation expected to stay close to the 2% target in the medium term.

At the same time, the Japanese Yen continues to benefit from specific supportive factors. The currency retains its safe-haven appeal amid persistent geopolitical tensions and concerns over global fiscal conditions. Comments from Atsushi Mimura, Japan’s Vice Finance Minister for International Affairs, have revived speculation about possible official intervention against what are seen as excessive moves in the foreign exchange market, helping to limit downside pressure on the JPY.

On the monetary policy front, the Bank of Japan (BoJ) recently raised its policy rate to 0.75%, the highest level in several decades, while keeping the door open to further tightening if economic activity and inflation evolve in line with forecasts. BoJ Governor Kazuo Ueda has remained deliberately vague on the timing and pace of future rate hikes, stressing that decisions will depend closely on economic, price and financial conditions. According to an analysis from ING, further rate increases are expected, but not imminently, with a potential timeline extending into 2026.

Against this backdrop, EUR/JPY struggles to find a clear direction. The stability signaled by European monetary policy limits upside catalysts for the Euro (EUR), while the Japanese Yen remains supported by expectations of gradual tightening in Japan and an uncertain global environment.

HSBC's report discusses the European Central Bank's (ECB) decision to maintain its key deposit rate at 2% and its implications for the euro. The report highlights that external developments and fiscal measures are expected to play a greater role in influencing the euro's direction in 2026, given the ECB's stable policy stance.

ECB's steady policy impacts Euro outlook

"The ECB’s updated forecasts were hawkish, with growth projections raised to 1.2% for 2026 and 1.4% for 2027 (from its September forecasts of 1.0% and 1.3%, respectively) and only limited inflation undershooting for the next two years expected."

"Our economists expect the ECB to maintain its current policy stance through 2026, with a possible rate increase in 2027."

"Given this policy stability, developments in other major economies are likely to have a greater influence on the EUR’s direction. The EUR may also face headwinds if regional fiscal measures fall short of expectations or if external conditions become less supportive."