Forex News

Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee said on Friday that waiting would have provided the benefit of the updated economic data, and most data show stable economic growth, with the labor market only moderately cooling.

Key takeaways

Goolsbee dissented over the rate cut because he believed the Fed should wait for more information, particularly about inflation.

There is little to suggest the labor market is decaying so fast that the Fed could not have waited until early 2026 to cut rates again.

Inflation has been above target for four and a half years, progress has stalled, and businesses and consumers cite prices as a main concern.

Higher current inflation may have come from tariffs and could prove transitory, but the danger is that it becomes more long-lasting.

Waiting would have been the more prudent course and would not have entailed much additional risk.

Most data show stable economic growth, with the labor market only moderately cooling.

There is still optimism that rates can come down significantly over the next year, but there are concerns about front-loading given the inflation of the last several years.

Can't assume that current inflation will be transitory.

Waiting until Q1 for rate cuts would allow Fed to be assured inflation is coming down.

Measures of job market have been pretty stable.

Shifts in data like monthly payrolls have made it difficult to assess things like breakeven job creation rates.

To have both low hiring and low firing does not suggest a cyclical downturn.

Not hawkish on rates next year, feel optimistic rates can fall this year but uncomfortable front loading looser policy.

Services inflation before the government shutdown was concerning.

There is nothing wrong with the argument that inflation will fall next year but need to be more certain.

Says he is below the median in terms of 2026 rate cuts.

Expect the unemployment rate to be pretty stable.

Prices are one of the main concerns that businesses and consumers have about the economy right now.

People take the Fed job seriously, that is fundamental to its independence.

Vote to reappoint Fed regional presidents took place on a normal schedule but was announced earlier.

The process of reappointing regional bank presidents is "very robust".

The restart of Fed security purchases is technical to assure rate control, not part of monetary policy.

The balance sheet under ample reserves has to grow as the economy does.

Take some comfort in market-based measures of inflation, a source of optimism about the path of price increases.

Drop in inflation should be detectable in the first quarter of the year."

• EUR/GBP remains virtually unchanged around 0.8760 on Friday.
• Stable German inflation and expectations of a prolonged pause by the ECB support sentiment toward the Euro.
• The renewed contraction in UK GDP in October reinforces expectations of monetary easing by the Bank of England.

EUR/GBP trades without a clear direction on Friday, hovering around 0.8760 at the time of writing, with the pair remaining stable despite contrasting macroeconomic developments between the Eurozone and the United Kingdom. Data published in Germany confirms that inflation remains contained, while the UK’s economic trajectory continues to weaken, increasing pressure on the Bank of England (BoE).

In the Eurozone, the Harmonized Index of Consumer Prices (HICP) edged up to 2.6% YoY in November, after 2.3% in October, in line with preliminary estimates. On a monthly basis, prices fell by 0.5%, limiting the impact on the Euro (EUR). This stability reinforces the idea that the European Central Bank (ECB) has reached a balanced stance in its monetary policy. President Christine Lagarde reiterated that the current policy setting “is in a good position”, while Governing Council members François Villeroy de Galhau and Gediminas Simkus said there is no immediate need to cut or raise rates.

In contrast, the Pound Sterling (GBP) comes under renewed pressure following the release of UK Gross Domestic Product (GDP), which contracted by 0.1% in October, missing expectations of a modest expansion. This data contradicts the recent upward revision by the Office for Budget Responsibility, which had lifted its 2025 growth forecast to 1.5%. Investors see this report as another confirmation of the UK economy’s persistent weakness, fueling expectations of a rate cut at next week’s BoE meeting.

Industrial Production offered a mild positive surprise, rising 1.1% in October, though Manufacturing Production slowed to 0.5%, indicating that the sector continues to struggle to regain momentum. In this environment, the fundamental backdrop remains unfavourable for the Pound Sterling, while the Euro benefits from greater monetary stability.

EUR/GBP may therefore remain broadly stable in the short term, but risks appear slightly tilted in favour of the single currency as long as markets anticipate a more accommodative BoE compared with an ECB committed to a prolonged pause.

• EUR/USD eases below 1.1730 from the two-month high at 1.1762 posted on Thursday.
• The increasing monetary policy divergence between the ECB and the Fed keeps the US Dollar on its back foot.
• Technical indicators suggest that Euro bulls are starting to lose steam following the rally of the last two days.

EUR/USD is going through a moderate correction, trading at levels near 1.1720 on Friday after pulling back from more than two-and-a-half months' highs at 1.1762. The pair, broader trend, however, remains bullish with the increasing monetary policy divergence between the European Central Bank (ECB) and the US Federal Reserve (Fed) limiting the US Dollar's (USD) rallies.

The Fed cut rates this week and pointed to one more rate cut in 2026. Investors, however, still expect that the US central bank will ease monetary policy at least two times, considering that Chairman Jerome Powell will likely be replaced by the more dovish-leaning Kevin Hassett. Hasset is the White House economic adviser and has repeatedly shown his inclination for significantly lower borrowing costs.

On the macroeconomic front, German consumer inflation data confirmed that price pressures accelerated in November, although the monthly inflation contracted. In the US, a batch of Fed policymakers will take the stage and might give further insight into the central bank's monetary policy.

Daily Digest Market Movers: US Dollar's weakness keeps Euro dips limited

• The Euro (EUR) continues drawing support from broad-based US Dollar weakness. The USD Index, which measures the value of the Greenback against a basket of six majors, has been trading at two-month lows near 98.00, as investors keep pricing further Fed cuts, while most major central banks are at the end of their easing cycles.
• Data from Germany released on Friday revealed that the Harmonized Index of Consumer Prices (HICP) accelerated to 2.6% in the year to November, from 2.3% in the previous month, while prices fell by 0.5% on the month. These figures confirm the preliminary numbers and, therefore, the impact on the Euro has been minimal.
• In the US, Jobless Claims data released on Thursday showed that first-time applications for unemployment benefits rose by 44,000 in the first week of December, to 236,000. This is the largest increase in more than four years and backs the idea that the Fed will be forced to lower interest rates further to support a deteriorating labour market.
• Later in the day, the focus will shift to Philadelphia Fed President, Anna Paulson, the Cleveland Fed President, Beth Hammack, the Chicago Fed President, Austan Goolsbee, and Kansas City Fed President, Jeff Schmid, who will make public comments during the American trading hours.

Technical Analysis: EUR/USD pulls back from overbought levels

The EUR/USD is correcting lower following a nearly 1.2% rally over the last two days that had pushed technical indicators into overbought levels. The 4-Hour Relative Strength Index (RSI) is at 63 after having hit highs past 70, and the Moving Average Convergence Divergence (MACD) indicator has turned flat, indicating a weaker bullish momentum.

Bears are now testing support at the October 17 high near 1.1730. Beyond here, Thursday's low, at the 1.1680 area, and the December 9 low at 1.1615 will come into focus. To the upside, Thursday's high at 1.1762 and the October 1 high at around 1.1780 are likely to challenge bulls. Further up, the target is the September 23 and 24 highs near 1.1820.

USD/JPY trades offered but lacks follow-through, as markets near full pricing of a 25bps BOJ hike on 19 December. Near-term support lies at 155.10–153.90, while any meaningful JPY recovery would require stronger guidance from the BOJ, fiscal prudence, and a softer USD. Pair was last seen around 155.98 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

USD/JPY is likely to consolidate in the interim

"USD/JPY continued to trade with an offered tone but seems to lack follow-through to test much lower. To be fair, markets have already come close to fully pricing in a BOJ hike on 19 Dec MPC."

"Mild bearish momentum on daily chart intact while decline in RSI moderated. We may see some consolidation in the interim. Support at 155.10, 154.40 (76.4% fibo retracement of 2025 high to low), 153.90 (50 DMA). Resistance at 156(21 DMA), 157 and 158.87 (previous high in 2025)."

"We believe USD/JPY is going into BOJ meeting looking for clues about 2026 not just about Dec meeting outcome. And we reiterate that any meaningful recovery in JPY would require not just the BOJ to follow through with stronger guidance but also for policymakers to demonstrate fiscal prudence and for the USD to stay soft."

USD recovered some of yesterday’s losses and trading close to the middle of its range in place since June. The MSCI All Country World Index rallied to a record high yesterday underpinned by Fed easing and resilient global economic activity. USD has room to edge down to the lower-end of its range as it converges towards the level implied by US-G6 rate differentials, BBH FX analysts report.

Fed reappointments highlight continuity

"The Federal Reserve Board of Governors unanimously reappointed 11 of the 12 regional Fed presidents to new five-year terms which begins on March 1, 2026. Atlanta Fed President Raphael Bostic previously announced he would retire at the end of his term on February 28, 2026. The reappointments underscore institutional continuity, and ease worries about political interference at the Fed."

"Philadelphia Fed President Anna Paulson (2026 FOMC voter) speaks on the economic outlook. Paulson leans cautiously dovish. In her last November 20 speech, she noted 'On the margin, I’m still a little more worried about the labor market than I am about inflation'. Staunch hawk Cleveland Fed President Beth Hammack (2026 FOMC voter) speaks half-an-hour later, followed by Chicago Fed President Austan Goolsbee (2025 FOMC voter). Goolsbee voted to keep rates on hold at this week’s FOMC meeting."

"In our view, the Fed will deliver more than the one cut it has penciled in for next year. US labor demand is weak and upside risks to inflation are not martializing. Next week is key with November non-farm payrolls and CPI on deck. Fed funds futures fully price-in 50bps of total easing in the next twelve months."

• USD/JPY rebounds to near 156.00 even as the BoJ is expected to raise interest rates next week.
• BoJ’s Ueda stated last week that there is uncertainty on how much the central bank can raise interest rates further.
• This week, the Fed lowered interest rates by 25 bps to 3.50%-3.75%.

The USD/JPY pair snaps a two-day losing streak and rebounds to near 156.00 during the European trading session on Friday. The pair attracts bids as the Japanese Yen (JPY) underperforms across the board, despite traders remaining confident that the Bank of Japan (BoJ) will raise interest rates in its monetary policy meeting next week.

The major reason behind firm BoJ hawkish bets is expectations that inflation in Japan is on tract to return sustainably to the 2% target.

Last week, BoJ Governor Kazuo Ueda stated that the central bank will continue raising interest rates, however, there is “uncertainty on how far we can eventually raise them”.

The pair recovers even as the US Dollar (USD) is under pressure since the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. In the policy meeting, the Fed reduced interest rates by 25 basis points (bps) to 3.50%-3.75% and signaled that there will be one more in 2026. Contrary to Fed’s outlook, investors anticipated before the policy outcome that the Fed will signal no further interest rate cuts.

Going forward, investors will focus on the United States (US) Nonfarm Payrolls (NFP) data for November, which will be released on Tuesday. On the same day, investors will also focus on the Retail Sales data for November and preliminary S&P Global Purchasing Managers’ Index (PMI) data for December.

Investors will closely monitor the employment data to get cues about the current status of labour demand.

Following the Federal Open Market Committee (FOMC) meeting, the US Dollar (USD) softened broadly while risk proxies, non-USD currencies, precious metals, and even crypto assets saw constructive moves. DXY last seen around 98.46 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Risk assets and precious metals gain

"Post-FOMC market reaction has remained constructive for risk proxies, precious metals, non-USD FX and even crypto assets while USD traded broadly softer. We continue to expect USD to trade moderately softer as Fed easing erodes carry advantage while US exceptionalism fades."

"We reiterate that non-USD FX (especially those central banks likely to be on extended hold or seen as chance of a hike next year.. i.e. EUR, AUD, NZD and JPY) should continue to trade better bid as FOMC event risk fades."

"Bearish momentum on daily chart intact for now while RSI fell closer to oversold conditions. Support at 98.10, 97.60 (23.6% fibo). Resistance at 98.40/60 levels (100 DMA, 38.2% fibo), 99.10/30 levels (21, 50, 200 DMAs, 50% fibo retracement of May high to Sep low) and 99.80 levels (61.8% fibo)."