Forex News

European Central Bank (ECB) policymaker Olaf Sleijpen spoke at a news conference in Amsterdam, Netherlands, on Friday.

Key takeaways

"Policy in a good place but we must maintain data-dependent, meeting-by-meeting approach.

Growth, inflation risks are large but fairly balanced.”

• EUR/CHF edges higher after slipping to multi-week lows following the ECB decision.
• The ECB keeps policy unchanged and reiterates a data-dependent, meeting-by-meeting approach.
• The SNB maintains a stable policy stance as inflation pressure remains contained.

The Euro (EUR) trades slightly firmer against the Swiss Franc (CHF) on Friday after slipping to over three-week lows in the previous day following the European Central Bank’s (ECB) monetary policy decision. At the time of writing, EUR/CHF edges modestly higher around 0.9318, snapping a three-day losing streak.

The ECB left its three key policy rates unchanged on Thursday, in line with market expectations, keeping the Deposit Facility, Main Refinancing Operations and Marginal Lending Facility rates at 2.00%, 2.15% and 2.40%, respectively.

In its policy statement, the ECB’s Governing Council reiterated its commitment to ensuring that inflation stabilises at its 2% target over the medium term. Policymakers stressed that future decisions will remain data-dependent and taken on a meeting-by-meeting basis, guided by the inflation outlook, incoming economic and financial data, underlying price dynamics and the effectiveness of monetary policy transmission.

Several ECB policymakers crossed the wires on Friday, striking a cautious tone on the policy outlook. Madis Müller said it is too early to speculate on what happens beyond the near term, adding that markets expect rates to remain at current levels for at least six months.

Olli Rehn noted that the next ECB move is not necessarily upward and stressed that economic uncertainty remains elevated, reiterating that decisions will continue to be taken on a meeting-by-meeting basis.

José Luis Escrivá said it is unclear which direction rates will go next, while Álvaro Santos Pereira remarked that policy is in a good place but warned that shocks remain possible.

On the Swiss side, the economic calendar was relatively light this week. In its Q4 Quarterly Bulletin released on Wednesday, the Swiss National Bank (SNB) reiterated that it kept its policy rate unchanged at 0% at the December meeting, judging that inflation pressures over the medium term remain broadly stable. The central bank said its current stance remains appropriate to keep inflation within its price-stability range while continuing to support the economy.

The Bank of Japan (BOJ) unanimously voted to raise the policy rate 25bps to 0.75% (widely expected) and reinforced its tightening bias. The BOJ noted 'given that real interest rates are at significantly low levels, the Bank will continue to raise the policy interest rate and adjust the degree of monetary accommodation', BBH FX analysts report.

Neutral rate range remains broad

"USD/JPY surged over 1% to a high near 157.40 because the BOJ may have left the door open to a prolong period of accommodative policy. The BOJ did not sharpen its estimate of the neutral rate range as market participants anticipated. The BOJ still sees the neutral rate to be within a wide range between 1% and 2.5%."

"We would fade that dovish BOJ narrative. In our view, the bar for additional BOJ rate hikes is low. First, the BOJ warned that 'the risk of firms' active wage-setting behavior being interrupted is low', implying that underlying wage and inflation pressure are likely to persist. Second, BOJ Governor Ueda pointed out the policy rate is still some distance from the lower end of the neutral rate range."

"The swaps curve is betting on 75bps of BOJ rate hikes over the two years versus 50bps of easing by the Fed. As such, USD/JPY has scope to converge with two-year implied policy rate differentials and trade closer to 140.00."

Today’s decision by the BoJ to hike its policy rate by 25 bps as expected has failed to support the JPY. Indeed, USD/JPY has pushed above the 157.00 level this morning marking its highest levels for almost a month. The price action in the JPY suggests that the rhetoric that accompanied today’s policy decision was less hawkish than the market had expected, Rabobank's FX analyst Jane Foley reports.

BoJ policy statement less hawkish than market expected

"The BoJ policy statement explicitly says that “if the outlook for economic activity and prices presented in the October Outlook Report will be realized, the Bank, in accordance with improvement in economic activity and prices, will continue to raise the policy interest rate and adjust the degree of monetary accommodation.” In view of the market reaction, it is likely that BoJ officials could attempt to strengthen the hawkish narrative over the coming weeks."

"We continue to expect USD/JPY to turn lower in 2026. However, market pricing now suggests that the majority of G10 central banks have likely completed their easing cycles and that some could be hiking rates by the end of next year. Failing a significant push back from the BoJ, the impact on interest rate differentials may strengthen the view that the JPY will remain an attractive funding currency for carry trades. Consequently we have raised our USD/JPY forecasts over the coming year."

"We continue to see the JPY as likely benefitting from higher rates and investment flows linked to the country’s move away from deflation and stock market reforms. However, fiscal concerns and the JPY’s perceived potential as a funding currency could limit any recovery. We have adjusted our USD/JPY forecasts and now see the currency pair at 145 on a 12-month view from 140 previously."

• EUR/USD drifts closer to 1.1700 on track to a mild weekly decline.
• The ECB kept its monetary policy unchanged and left all options open.
• In the US, November's CPI showed an unexpected decline in inflation.

EUR/USD languishes near 1.1710 on Friday's US session opening times, down from the three-month highs, above 1.1800, hit earlier this week. The pair is on track to close the week with moderate losses, as the US Dollar picks up against its main peers.

The Euro (EUR) extended losses on Thursday after the European Central Bank (ECB) left interest rates unchanged, as widely expected, and ECB President Christine Lagarde refused to commit to any particular rate path. Lagarde affirmed that the decision was taken unanimously and there was no discussion to change interest rates, suggesting that market speculation about a rate hike is unfounded.

In the US, November's Consumer Price Index (CPI) revealed an unexpected decline in inflation, with the year-on-year rate easing to 2.7% from 3.0% in September, as October's reading was cancelled due to the US Government shutdown. The market has taken these figures with caution, and rightly so, as the Commerce Department affirmed that it only collected data from the second half of the month, with the Black Friday sales already in progress.

On Friday's US session, the US Michigan Consumer Sentiment Index and the European Commission's Consumer Confidence preliminary survey for December will be the main focus.

Daily Digest Market Movers: Euro eases as the ECB maintains its "wait-and-see" stance

• The Euro is pulling back from recent highs, as investors come to terms with the fact that it is still too early to bet on an ECB rate hike. Downside attempts, however, are likely to remain limited, as the US Federal Reserve (Fed) is seen cutting rates at least two times in 2026.
• The ECB left its Rate on the Deposit Facility unchanged at 2%, as expected, and revised up its economic growth outlook to 1.4% in 2025 and 1.2% in 2026. President Lagarde, however, said that all options are open and that there is no date for any monetary policy move.
• ECB Board member and Latvian Central Bank Governor Martins Khazakhs reiterated that view on Friday, warning that it is counter-productive to talk about the direction of rates, as the nbank needs "full optionality, with risks on both sides."
• In the US, CPI figures showed that inflation eased to a 2.7% yearly rate in November, from 3.0% in September, against expectations of a slight increase to 3.1%. Likewise, core inflation moderated to a 2.6% yearly rate from 3% in September.
• The German GfK Confidence Survey, released on Friday, has shown further deterioration, with January's reading dropping to -26.9 from -23.4 in the previous month, and undershooting market expectations of a -23.2 reading.
• German Producer Prices Index, also released on Friday, revealed that factory inflation stalled in November, down from a 0.1% rise in October, and contracted at a 2.3% pace in the last 12 months, below the 1.8% decline seen in October and also below the 2.2% contraction forecast by the market consensus.
• Later in the day, the preliminary Eurozone Consumer Confidence is expected to show a slight improvement to -14.0 in December from -14.2 in November.
• At the same time, December's US Michigan Consumer Sentiment Index is expected to be revised up to 53.4 from the 53.3 preliminary reading.

Technical Analysis: EUR/USD is expected to find support at 1.1700

The EUR/USD remains under moderate bearish pressure, with bears focusing on the 1.1700 support area. The 4-hour Relative Strength Index (RSI) trends lower below the 50 mid-line, and the Moving Average Convergence Divergence (MACD) indicator remains below zero, printing red bars, which points to a growing negative momentum.

The December 17 low, at 1.1703, and the trendline support, now around 1.1695, are likely to challenge bears ahead of the 1.1685 level (December 11 low, December 4 high). A confirmation below this level would cancel the bullish view and bring the December 9 low, at 1.1615, into focus.

To the upside, immediate resistance is at Thursday's high, near 1.1760, ahead of Tuesday's high, at 1.1804, and the September 23 and 24 highs, near 1.1820.

GBP/USD is trading in a tight range around 1.3375 after testing an intra-day high of 1.3446 yesterday. UK retail sales unexpectedly declined in November.  Total retail sales volumes dropped -0.1% m/m (consensus: 0.3%) vs. -0.9% in October driven by reduced online demand for precious metals, BBH FX analysts report.

BOE signals gradual path for future easing

"Real household consumption growth has been stagnant in recent years. Consumption has risen by just under 1% since 2019 Q4. High interest rates have accounted for a large part of the weakness in consumption growth. As such, less restrictive BOE policy should lead to a pick-up in household spending in coming quarters."

"Yesterday, the Bank of England (BOE) delivered on expectations and voted 5-4 in favor of a 25bps rate cut to 3.75%. Andrew Bailey, Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor supported a cut. Megan Greene, Clare Lombardelli, Catherine Mann and Huw Pill supported a hold."

"The BOE tweaked its easing bias to imply that additional cuts aren’t guaranteed. The BOE stressed again that the 'Bank Rate is likely to continue on a gradual downward path' but added 'judgements around further policy easing will become a closer call'. We expect GBP/USD to hold above its 200-day moving average (1.3353)."