Forex News

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)."

Pound Sterling (GBP) initially surged following the Bank of England’s (BoE) 25bp rate cut to 3.75%, but gains later eased as markets digested the less dovish-than-expected guidance. Governor Bailey emphasized that further easing will be gradual and data-dependent, prompting traders to slightly trim expectations for next year’s cuts. Technicals show a rising wedge forming, leaving room for potential near-term downside. Pair was last at 1.3371 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Markets trim eate cut bets to ~39bps for 2026

"GBP erased earlier drop post BOE outcome. While MPC voted 5-4 to cut rate by 25bp as widely expected, the rhetoric was less dovish than markets have expected. Accompanying statement noted that 'On the basis of the current evidence, Bank Rate is likely to continue on a gradual downward path. But judgements around further policy easing will become a closer call'."

"BOE Governor Bailey said 'While I see scope for some additional policy easing, the path for Bank Rate cannot be pre-judged with precision, recognizing in part the more limited space as Bank Rate approaches a neutral rate. We still think rates are on a gradual path downward. But with every cut we make, how much further we go becomes a closer call'. Markets have also slightly trimmed rate cut bets next year to about 39bps."

"GBP jumped post decision outcome but subsequently also pared back gains. Bullish momentum on daily chart intact but shows tentative signs of fading while RSI eased lower. Rising wedge pattern appears to be forming – typically associated with bearish reversal. Some downside risk is not ruled out. Support at 1.3350 (200 DMA, 23.6% fibo retracement of Nov low to Dec high), 1.3290 (21 DMA, 38.2% fibo) and 1.3255 (50 DMA). Resistance at 1.3460 (Dec high), 1.35 levels."

EUR/USD softened to 1.1710 after French PM Lecornu confirmed that Parliament will miss year-end budget approval, forcing a special rollover law. Despite this fiscal setback, the European Central Bank’s (ECB) hold on rates at 2.00% and upward revisions to growth and 2026 inflation underpin the euro, with rising wage pressures adding to the currency’s support, BBH FX analysts report.

Eurozone growth upgraded, inflation pressures remain sticky

"EUR/USD is trading heavy near 1.1710 after testing an intra-day high of 1.1763 yesterday. French Prime Minister Sebastien Lecornu confirmed the inevitable; Parliament will not be able to pass a budget before the end of the year. As a result, the government will start the process of filing a 'Special Law' bill that allows it functionally to roll over the 2025 budget into next year. France’s failure to repair public finances can lead to further bouts of fiscal stress and is a headwind for EUR."

"Otherwise, ECB/Fed policy stance continues to underpin the uptrend in EUR/USD. As was widely expected, the ECB left the policy rate unchanged at 2.00% for a fourth consecutive meeting."

"The ECB’s updated macroeconomic projections reinforce the case that the bank is in a good place to keep rates on hold for some time and that the next move is a hike. Eurozone economic growth is expected to be stronger than in the September projections and inflation has been revised up for 2026 due to stickier services inflation. Indeed, the ECB’s Q3 negotiated wage tracker released today points to rising wage pressures."

The European Central Bank (ECB) kept policy rates unchanged, reinforcing its flexible, data-dependent stance. While not committing to a hike, President Lagarde emphasized that all options remain on the table, supporting expectations that the easing cycle may have ended. EUR/USD remains supported, with technicals favoring buy-on-dips despite a corrective pullback risk. Pair was last seen at 1.1713 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Lagarde leaves all policy options open amid improved growth outlook

"The ECB left policy rates unchanged, as widely expected, marking the 4th consecutive meeting on hold. Lagarde reiterated that the Governing Council remains in a 'good place' on rates, but emphasized that policy is 'not static', reinforcing a stance of flexibility rather than pre-commitment. This framing was consistent with the ECB’s continued desire to stay data-dependent amid still-uncertain inflation dynamics."

"At the press conference, Lagarde addressed market speculation that the ECB’s next policy move could be a rate hike rather than a cut, stressed that there was unanimity within the Governing Council that 'all optionalities should remain on the table', underscoring the absence of a pre-determined policy path. While not explicitly endorsing a hiking bias, the refusal to rule it out was nonetheless perceived as mildly hawkish."

"Taken together, the combination of improved growth and higher CPI projections, alongside expectation that ECB has likely ended easing cycle are factors supportive of EUR. Mild bullish momentum on daily chart intact though there are signs of it waning while RSI fell from overbought conditions. Corrective pullback lower is not ruled out but bias remains to buy on dips. Support at 1.1640 (100 DMA), 1.1610 levels (21, 50 DMAs). Resistance at 1.1760, 1.1820 levels."

US Dollar (USD) recovered to a seven-day high, outperforming mostly against Japanese Yen (JPY). We are sticking to our view that relative monetary policy remains a drag for USD. The Fed has room to deliver more rate cuts while most other major central banks are done easing. No policy-relevant US data due today, BBH FX analysts report.

Fed retains room for rate cuts as other central banks pause

"US inflation unexpectedly cooled in November, but the data may have been distorted by the government shutdown. For a few price indexes, the Bureau of Labor Statistics used non-survey data sources instead of survey data to make the index calculations. Importantly, upside risk to US inflation appears to have softened and supports Fed funds futures pricing 50bps of cuts next year."

"The October US TIC data indicates a modest slowdown in foreign demand for US long-term securities (treasury bonds & notes, corporate bonds, equities, gov’t agency bonds). Net foreign purchases of long-term US securities increased $39bn in October vs. $203bn in September driven by private foreign investors net selling of Treasuries and reduced exposure to US equities."

"We expect foreign appetite for US long-term securities to dwindle over time. The Trump administration’s effort to narrow the US trade deficit means fewer dollars will flow overseas, reducing the need for those funds to be recycled back into US securities. That is a structural drag on USD."

• The Aussie maintains a bearish tone against the USD, trading near 0.6600.
• The US Dollar is firming up despite softer US CPI figures.
• In Australia, rising inflation expectations have failed to provide support to the AUD.

The Australian Dollar posts marginal losses against the USD in a calm trading session on Friday. The pair retains the bearish trend from the 0.6685 highs, with the support area around 0.6600 under pressure.

The US Dollar is trading moderately higher against its main peers on Friday, unfazed by the soft US Consumer Prices Index (CPI) figures released on Thursday and investors’ hopes that the Federal Reserve (Fed) will cut interest rates further in 2026.

Data released on Thursday showed that US consumer prices grew at a 2.7% year-on-year pace in November, down from 3% in October, while core inflation slowed to 2.6% from 3% in the previous month.

Traders skeptical about US CPI data

Investors have taken these figures with caution. The Commerce Department announced that data collection began in the second half of the month, when Black Friday sales started, which is highly likely to have distorted the final numbers.

The US Federal Reserve cut its benchmark interest rate by 25 basis points last week and projected only one more cut in 2026. Investors, however, remain confident that the bank will be forced to trim rates by at least 0.5% to support a deteriorating labor market.

Data released in Australia earlier this week revealed that Consumer inflation expectations increased to 4.7% in December from 4.5% in November. These figures add to the case that the RBA might hike interest rates in the first quarter of 2026, but the impact on the Aussie has been minimal