Forex-novosti i prognoze od 19-12-2024

• EUR/USD edges lower to 1.0360 in Friday’s early Asian session. 
• The Fed’s cautious approach to easing and stronger US GDP data underpin the USD. 
• The ECB may stay relatively dovish amid concerns over Eurozone economic growth. 

The EUR/USD pair trades with a mild negative bias around 1.0360 during the early Asian session on Friday. The major pair remains on the defensive as the US Federal Reserve (Fed) adopted a less dovish stance despite cutting interest rates by 25 basis points (bps) at its December meeting on Wednesday. Later on Friday, the release of the US Core Personal Consumption Expenditures (PCE) Price Index data will be in the spotlight. 

The Fed decided to cut the interest rates at its final meeting of this year and signaled a much slower monetary policy easing trajectory in 2025. The Summary of Economic Projections, or ‘dot-plot,’ showed only two rate cuts in 2025, down from the four they projected in September. This, in turn, might provide some support to the Greenback in the near term and act as a headwind for the major pair. 

Additionally, stronger-than-expected US third quarter GDP data showed the US economy grew at a 3.1% annual rate. This reading came in above the market consensus and the previous reading of 2.8%. 

Across the pond, the European Central Bank (ECB) is anticipated to cut the interest rate further by at least a full percentage point next year. The more dovish ECB easing policy than that of the Fed is likely to weigh on the Euro (EUR) against the Greenback. Analysts expect that the ECB may have to accelerate rate cuts in 2025 amid the economic concerns in the Eurozone, political instability, and Trump tariff threats, which might contribute to the EUR’s downside. 

• NZD/USD falls on Thursday, settling near 0.5630 and hitting new multi-year lows.
• Pair remains well below the 20-day SMA, reinforcing the entrenched bearish trend at its lowest levels since October 2022.
• RSI stands at 26 in oversold territory, offering little hope of a reversal, while MACD histogram shows rising red bars, indicating persistent selling pressure.

The NZD/USD pair extended its downtrend on Thursday, slipping by 0.36% to approximately 0.5630, a fresh multi-year low. Efforts by the bulls to stage any meaningful recovery continue to falter, as the 20-day Simple Moving Average (SMA), hovering around 0.5890, remains a distant target and a key barrier to halting the decline.

Technical indicators underscore the dire state of affairs. The Relative Strength Index (RSI) at 26 confirms oversold conditions, yet its inability to rebound suggests persistent downward momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints rising red bars, further cementing the bearish outlook and reducing the likelihood of a near-term turnaround.

As long as NZD/USD lingers below the 20-day SMA, the overall bias remains clearly negative. With no clear support levels nearby, the pair could face additional downside risks, keeping sellers firmly in control of the market’s direction.

NZD/USD daily chart

• Aussie recovers from 0.6200 lows, rising to 0.6260.
• Pause in hawkish Fed cut-led USD uptrend aids Aussie.
• China’s fragile recovery caps Aussie’s rebound.

The Australian Dollar rebounds from two-year lows of around 0.6200, buoyed by a pause in the US Dollar’s hawkish Fed cut-inspired uptrend. Although the Federal Reserve’s cautious tone on further cuts initially lifted the Greenback, the Aussie is finding relief as investors reassess growth prospects.

However, lingering worries about China’s sluggish recovery and possible higher US tariffs could limit the currency’s recovery.

Daily digest market movers: Aussie sees mild rebound after Fed signals fewer rate cuts

• The Federal Reserve’s new dot plot showed fewer interest rate cuts for next year, citing inflation uncertainty and robust economic activity.
• Fed Chair Jerome Powell highlighted proximity to the neutral rate and emphasized caution in future policy moves.
• Despite lingering headwinds, the Aussie’s current recovery attempts remain tempered by fears of a less accommodative global environment.
• In addition, the Reserve Bank of Australia is expected to cut rates sooner rather than later and as markets start to place dovish bets, the Aussie’s downside is wide open.

AUD/USD technical outlook: Aussie bounces as indicators exit deep oversold conditions

The Relative Strength Index (RSI) hovers around 31, rising sharply from near-oversold territory, while the Moving Average Convergence Divergence (MACD) histogram prints rising red bars, reflecting a mild rebound in momentum. Although these signals indicate a tentative relief from oversold levels, persistent macroeconomic challenges particularly China’s growth worries and the Fed’s cautious stance may still cap significant upside potential.

What you need to take care of on Friday, December 20:

The major economies' central bank bonanza finished with decisions of the Bank of England and the Bank of Japan. Both kept rates unchanged, with the BoJ weighing on the Yen, while the BoE’s decision did little to keep afloat the Pound Sterling.

With no significant economic data revealed next week, traders are eyeing the release of the US Core Personal Consumption Expenditures (PCE) Price Index on Friday, December 20. After that, trading activity will diminish amid thin liquidity conditions ahead of the holidays.

The US Dollar continues to record two-year highs after the US Dollar Index (DXY) cleared 108.00, extending its gains to 108.40, up 1.37% weekly. The greenback’s strength was sponsored by the Fed’s decision to push back against aggressive easing for the next year. Market participants eyed three to four rate cuts, but the US central bank estimates just two.

This droves the US 10-year Treasury bond yield higher, rising 3.84% weekly and clearing strong resistance seen at 4.50%.

Earlier, the Bank of England held rates at 4.75% in a 6-3 vote split, with Dhingra, Ramsden, and Taylor voting to cut rates by 25 basis points. The BoE maintained restrictive language in its statement and didn’t provide when and how much it will ease policy next year. The GBP/USD rose as high as 1.2664 before tumbling to 1.2500.

The Yen weakened as the BoJ decided to keep rates unchanged in an 8-1 vote split, as Tamura voted for a 25-bps hike. The BoJ failed to increase rates due to uncertainty regarding Japan’s economic and price outlook. BoJ Governor Ueda said that he needs to see wage negotiation momentum next year and would like to wait for January’s outlook report. The USD/JPY jumped from around 155.00 and hit a daily high of 157.80 before stabilizing around 157.30.

As the New York session ends and Asia begins, the EUR/USD trades near 1.0366, close to the current week’s lows. Antipodeans recovered late in the session, with the AUD/USD rising 0.43% to 0.6243 after hitting yearly lows beneath 0.6200.

Worse-than-expected growth data battered the NZD/USD as a recession hit New Zealand. The Kiwi dropped as low as 0.5607 before recovering some ground and advancing toward 0.5638.

The USD/CAD reached yearly highs of 1.4466 before sliding, as the CAD recovered some ground. The pair finished with losses of 0.45%.

Gold recovered and printed decent gains of 0.56%, hovering below $2,600, capped by the rise in US Treasury yields. Geopolitics and talks of a possible US government shutdown sponsored a leg-up in the golden metal.

Friday’s economic calendar includes Japan’s inflation data and New Zealand’s Balance of Trade figures. During the European session, attention will turn to Germany’s November Producer Price Index and the UK’s Retail Sales for the same month. The week will wrap up with Canadian Retail Sales data, U.S. inflation figures, and the University of Michigan Consumer Sentiment Index.

• Mexican Peso advances as Banco de Mexico reduces rates in line with forecasts.
• Banxico reduced the main reference rate to 10%, highlighting Q3 economic growth and inflation to reach the target in Q3 2026.
• USD/MXN set for uncertainty as Fed's hawkish cut contrasts with Banxico’s aggressive easing.

The Mexican Peso strengthened against the US Dollar on Thursday after the Banco de Mexico reduced interest rates as expected following the Federal Reserve’s (Fed) Wednesday decision. At the time of writing, USD/MXN trades near 20.32, down 0.17%.

Banxico unanimously decided to reduce the main reference rate by 25 basis points (bps) to 10.00%, as widely expected by analysts. The central bank added that the balance of risks to growth is tilted to the downside, though the economy expanded at a greater pace in Q3 2024.

Headline and core inflation decreased between November and December, with expectations for 2024 revised downwards. Those for the end of 2025 and the longer-term remained unchanged, and Banxico expects the Consumer Price Index (CPI) to converge to the bank’s 3% goal in Q3 2026.

Banxico’s Governing Board noted that imposing tariffs on US imports from Mexico added uncertainty to the projections. Nevertheless, the bank noted, "The inflationary environment will allow further reference rate reductions. In view of the progress on disinflation, larger downward adjustments could be considered in some meetings, albeit maintaining a restrictive stance.”

In the US, the economic docket revealed that the economy grew healthier, exceeding estimates and Q2’s reading, while the number of Americans filing for unemployment benefits dipped.

On Wednesday, the Fed adopted a less dovish stance despite cutting interest rates by 25 basis points (bps), though not unanimously. Fed Chair Jerome Powell hinted that the central bank had shifted slightly more attention to inflation, as seen by the dot plot, with most officials eyeing 50 basis points of easing for 2025.

This week, the Mexican economic docket is absent, while in the US, the release of the core Personal Consumption Expenditures Price Index and the University of Michigan (UoM) Consumer Sentiment poll will occur.

Daily digest market movers: Mexican Peso climbs as USD/MXN drops below 20.35

• Banxico estimates headline inflation would end 2024 at 4.6%, 2025 at 3.3%, and hit the 3% goal in Q3 2026. Core inflation is projected to end the current year at 3.6%, 2025 at 3.3%, and will hit 3% in Q2 2026.
• Banxico's December private sector survey forecasts Mexico's inflation to close 2024 at 4.37%, with core inflation easing to 3.60%, down from November’s 3.69%. Economic growth is expected at 1.60%, up from the previous 1.53%, while the USD/MXN exchange rate is projected at 20.25.
• For 2025, inflation is expected to decline to 3.80%, while core inflation is projected to rise slightly to 3.72%. GDP growth is forecast at 1.12%, lower than November’s 1.20% estimate, and the USD/MXN exchange rate is anticipated to reach 20.53.
• US Initial Jobless Claims for the week ending December 14 fell to 220K from 242K, beating expectations of 230K and signaling continued strength in the labor market.
• The US economy grew at an annual rate of 3.1% in Q3, surpassing the 2.8% forecast and slightly higher than the 3% growth in Q2.

USD/MXN technical outlook: Mexican Peso climbs as USD/MXN drops to 20.30

The USD/MXN uptrend remains in place, though it has halted as the Mexican currency appreciates. The exotic pair has failed to clear the 20.50 figure decisively, and it might be set to end the year at around the 20.00-20.50 range as liquidity begins to drain.

If sellers push the USD/MXN below the 50-day Simple Moving Average (SMA) at 20.13, the next support would be the 20.00 psychological figure. A breach of the latter will expose the 100-day SMA at 19.75, before challenging 19.50. For a bullish continuation, buyers must clear 20.20 before testing 20.50. On further strength, the next resistance would be the December 2 daily high of 20.59, followed by the year-to-date peak of 20.82 and the 21.00 mark.

• DXY hovers near 108.00 on Thursday as buyers seem to be taking a breather.
• Profit-taking emerges after Wednesday’s strong rally.
• Fed’s cautious tone spooks rate-cut optimists, which benefits the USD.

The US Dollar Index (DXY), which tracks the USD's value against a range of currencies, pulls back from its two-year peak following signals from the Federal Reserve (Fed) about fewer interest rate cuts in the future. Federal Open Market Committee (FOMC) members express concerns about inflation continuing into 2025 and take into account possible "Trump-effect" inflationary policies, such as tariffs and reduced labor supply due to deportations.

The DXY stands at 108.00, with that level acting as support. Despite recent advances, traders are taking profits as they consider Chinese economic data and potential stimulus measures that could slow down the US Dollar’s momentum.

Daily digest market movers: US Dollar re-evaluates after hawkish Fed signals

• The two-day Federal Open Market Committee meeting ended with a 25-basis-point cut but fewer projected cuts in 2025, reflecting persistent inflation and caution over future policy moves.
• Updated macro forecasts and the dot plot show upward revisions to growth and inflation, leading to a more hawkish medium-term outlook. The median 2025 policy rate moved to 3.875% from 3.375%, dropping from four projected cuts to two.
• Chair Jerome Powell struck a cautious tone, emphasizing uncertainty and the need for tangible inflation progress. Despite Wednesday’s cut, the Fed signaled that policy easing may slow or pause, keeping the United States rate advantage intact.
• President-elect Donald Trump’s incoming policies loom large, prompting the Fed to consider potential fiscal stimulus impacts on inflation and growth. This “Trump-effect” supports the US Dollar by widening rate differentials.
• On the data front, Initial Jobless Claims improved to 220K, below the 230,000 estimate.
• In addition, the third-quarter Gross Domestic Product expanded by 3.1% annualized versus 2.8% expected, with stable Personal Consumption Expenditures and core PCE measures.

DXY technical outlook: Indicators soften as bulls pause

After Wednesday’s upward movement, technical indicators are easing for the Greenback, allowing the US Dollar Index to take a breather while it remains neutral in the vicinity of 108.30.

Although momentum has waned, the overall picture stays constructive as long as the DXY holds above its 20-day Simple Moving Average (SMA). Without fresh catalysts, the US Dollar may hover within current ranges, awaiting clearer signals before attempting another push higher.

• GBP/USD drops over 60 pips, pressured by robust US job and GDP reports, flirting with the 1.2500 threshold.
• US 10-year Treasury yield climbs seven bps to 4.592%, reinforcing dollar strength against the British Pound.
• BoE holds interest rate steady in a split decision, with mixed expectations for future rate adjustments in early 2025.

The GBP/USD extended its losses during the North American session, with sellers targeting a break below 1.2500. Cable is losing over 0.48% or 60 pips on the day. At the time of writing, the pair hovers near 1.2500.

Cable declines sharply amid strong US economic data and rising Treasury yields

US data released ahead of the New York open hinted that the labor market remains solid and the economy is expanding. Initial Jobless Claims for the week ending December 14 fell from 242K to 220K, below forecasts of 230K.

At the same time, the US Bureau of Economic Analysis (BEA) revealed that the Gross Domestic Product in Q3 ended at 3.1%, above estimates of 2.8% and up from 3% in Q2.

Earlier, the Bank of England (BoE) left rates unchanged at 4.75% in a 6-3 vote split. At the time of writing, the odds that the BoE will hold rates in February 2025 stand at 57%, while for a quarter of a percentage point rate cut, chances are at 43%.

Source: Prime Market Terminal

Lately, the GBP/USD has extended its losses as US Treasury yields soared, with the 10-year T-note yielding up seven basis points (bps) at 4.592%. This underpins the Greenback, as seen by the US Dollar Index (DXY), gaining 0.24% at 108.45.

GBP/USD Price Forecast: technical outlook

The GBP/USD is falling rapidly towards testing the November 22 low of 1.2486. In that outcome, sellers would not have anything on the way ahead of the April 22 low of 1.2299. Conversely, if GBP/USD stays above 1.2500, buyers could target 1.2600, ahead of challenging the daily high of 1.2664. On further strength, the December 17 high of 1.2728 would be up next.

• Gold registers gains of over $0.20 following the Fed's less dovish approach.
• Economic data shows US economic growth at 3.1% YoY in Q3.
• Potential US government shutdown looms, enhancing Gold's appeal as a safe-haven asset amidst uncertainty.

On Thursday, the Gold price trimmed some of its losses from Wednesday, posting a timid advance of 0.20%. Thursday’s minor gain follows the Federal Reserve’s (Fed) decision to adopt a more gradual stance, pushing against three interest rate cuts for 2025. The XAU/USD trades at $2,588 after reaching a daily high of $2,626.

The US economic docket on Thursday witnessed a drop in Americans asking for unemployment benefits. In the meantime, US GDP grew 3.1% YoY in Q3 in its final release, according to the US Bureau of Economic Analysis.

Despite this, the financial markets are focused on deciphering what will happen in 2025. Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) board reduced borrowing costs by 25 basis points. It wasn’t unanimous, however, as Beth Hammack of the Cleveland Fed voted to maintain the “status quo.”

In addition, Fed officials have turned their attention to inflation, as expressed in the dot plot. They forecast two 25 bps rate cuts in 2025 and two more for 2026.

In the meantime, the US government is only days away from being shut down with US President-elect Donald Trump pressuring Republicans in the House of Representatives to increase or eliminate the debt ceiling.

Additionally, Reuters cited Politico sources that US Speaker Johnson and President-elect Trump’s team are encircling a new federal funding stop-gap plan that includes disaster aid, pushing off a debt limit fight for two years, and agreeing to a one-year farm bill extension.

A possible government shutdown would push Bullion prices higher due to its safe-haven status amid political uncertainty, which tends to thrive in a low-interest environment.

Ahead this week, the economic docket will feature the release of the core Personal Consumption Expenditures (PCE) Price Index, the Fed’s favorite inflation gauge, and the University of Michigan (UoM) Consumer Sentiment poll.

Daily digest market movers: Gold price holds to gains below $2,600

• Gold prices climb amid rising US real yields, which are up by three basis points to 2.248%, a headwind for the precious metal.
• The US 10-year Treasury bond yield rose five basis points to 4.568% after the Fed’s decision.
• The US Dollar Index, which tracks the performance of the American currency against six others, surged 0.16% to 108.39.
• Initial Jobless Claims in the US for the week ending December 14 dipped from 242K to 220K, below forecasts of 230K, an indication that the labor market remains solid.
• The Gross Domestic Product in Q3 ended at 3.1%, above estimates of 2.8% and up from 3% in Q2.
• Federal Reserve officials estimate inflation to end 2024 at 2.8% , 2.5% in 2025, and 2.2% in 2026.
• Policymakers project the economy to grow by 2.5% in 2024, 2.1% in 2025, and 2% in 2026.

XAU/USD technical outlook: Gold upside limited by 100-day SMA

Gold price uptrend is intact, though it’s facing stir resistance at the 100-day Simple Moving Average (SMA) at $2,605 and the psychological $2,600 figure. In the short term, momentum favors sellers as depicted by the Relative Strength Index (RSI) below its neutral line.

For a bearish resumption, bears need to clear the $2,550 figure, followed by the November 14 swing low of $2,536. If surpassed, the next stop would be the $2,500 level.

For a bullish resumption, the XAU/USD must clear $2,600, then $2,650, and the 50-day SMA at $2,670. Once cleared, the next stop would be $2,700.

• EUR/USD rises by 0.45% on Thursday to 1.0400, recovering slightly from a sharp drop.
• RSI stands at 35, in negative territory but rising sharply, suggesting an attempt to regain momentum.
• MACD histogram shows rising red bars, indicating persistent bearish pressure, albeit with signs of easing.

After a steep decline of more than 1% in the prior session, EUR/USD managed a modest rebound on Thursday, climbing 0.45% to trade near 1.0400. Despite this partial recovery, the pair remains comfortably below the 20-day Simple Moving Average (SMA), which continues to cap any meaningful upside attempts.

Technical indicators paint a mixed picture. The Relative Strength Index (RSI) has improved to 35, still in negative territory but rising sharply, hinting at diminishing selling pressure. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints rising red bars, reflecting ongoing bearish momentum, though it may be starting to wane.

A sustained break above the 20-day SMA is needed to shift the short-term outlook to a more positive stance. Until then, the bias remains tilted to the downside, and the pair’s recent gains appear more like a relief bounce than a genuine trend reversal.

EUR/USD daily chart

• GBP/USD fell to 1.2588, reversing gains post-BoE's decision to maintain current interest rates.
• Technical barriers at 1.2665 cap upward movement, setting stage for potential further declines below 1.2600.
• Key support levels to watch: 1.2550, followed by November and April lows at 1.2486 and 1.2299 respectively.

The British Pound trims some of its earlier gains versus the US Dollar after the Bank of England (BoE) held rates steady and pushed the GBP/USD toward its daily high of 1.2664. However, once the dust settled, the pair retreated below 1.2600, trading at 1.2578 at the time of writing.

GBP/USD Price Forecast: Technical outlook

The GBP/USD remains biased downward, confirming its bias once buyers failed to clear the December 17 swing low, which turned resistance at 1.2665. This opened the door for further losses beneath 1.2600, extending its drop below 1.2590.

Momentum remains bearish, as depicted by the Relative Strength Index (RSI), standing below its neutral line, tilted to the downside.

If sellers would like to remain in charge, they need to clear the 1.2550 area. Once surpassed, the next stop would be the November 22 low of 1.2486, followed by the April 22 low of 1.2299.

Conversely, if buyers want to regain control, they need to reclaim 1.2600, followed by the December 17 high of 1.2728. A breach of the latter will expose the confluence of the 50 and 200-day Simple Moving Averages (SMAs) at around 1.2803 and 1.2815, respectively.

GBP/USD Price Chart – Daily

As expected, the Bank of England MPC kept rates on hold at 4.75% at this week’s meeting. The vote was split 6-3, with three dissenters voting for a 25bp cut, Rabobank’s Senior Macro Strategist Stefan Koopman notes.

Path of least resistance remains for quarterly cuts

“We interpret this larger vote split as a signal to the market that the MPC is advocating a more rapid pace of cuts than currently priced in.”

“The MPC also stuck to its language of gradualism. In our view, the path of least resistance remains for quarterly cuts.”

“With three members already favoring cuts, only two more need to switch sides in February to mark the next move. We continue to expect the first cut of 2025 to land then.”

• USD/CAD slumps to near 1.4360 as the US Dollar corrects mildly after a robust rally.
• The Fed sees two interest rate cuts in 2025 amid strong economic growth.
• The US economy expanded at a faster pace of 3.1% in the third quarter of the year, slower than the preliminary estimate of 2.8%.

The USD/CAD pair falls sharply to near 1.4360 in Thursday’s North American session after posting a fresh more than four-year high at 1.4467. The Loonie pair slumps as the US Dollar (USD) bulls take a breather after a stalwart rally. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, corrects after refreshing two-year high near 108.25.

The Greenback rallies on Wednesday after the Federal Reserve (Fed) signaled fewer interest rate cuts for 2025 in the monetary policy meeting in which it reduced its key borrowing rates by 25 basis points (bps) to 4.25%-4.50%. According to the Fed’s dot ploy, policymakers see Federal Fund rates heading to 3.9% by the end of 2025.

Fed Chair Jerome Powell guided a cautious approach on interest rate cuts amid uncertainty over inflation, easing downside risks to employment and strong growth in the second-half of the year.

On the economic front, second estimate for the Q3 United States (US) Gross Domestic Product (GDP) data has shown that the economy rose at a faster pace of 3.1% than the preliminary estimate of 2.8%. Initial Jobless Claims for the week ending December 16 have come in lower at 220K than estimates of 230K and the former release of 242K.

Meanwhile, the outlook of the Canadian Dollar (CAD) remains bearish as the Bank of Canada (BoC) is expected to ease its interest rates further amid growing risks of inflation undershooting the bank’s target of 2%.

• US economy grew at a faster pace in Q3 than initially estimated.
• US Dollar Index stays in the red below 108.00.

The United States' Gross Domestic Product (GDP) expanded at an annual rate of 3.1% in the third quarter, the US Bureau of Economic Analysis (BEA) reported in its final estimate on Thursday. This reading came in above the market expectation and the previous estimate of 2.8%.

"The update primarily reflected upward revisions to exports and consumer spending that were partly offset by a downward revision to private inventory investment," the BEA explained in its press release. "Imports, which are a subtraction in the calculation of GDP, were revised up."

Market reaction

This report failed to trigger a noticeable market reaction. At the time of press release, the US Dollar Index was down 0.3% on the day at 107.90.

• Initial Jobless Claims in the US declined by 22,000 in the week ending December 14.
• US Dollar Index stays in negative territory near 108.00.

There were 220,000 initial jobless claims in the week ending December 14, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print followed the previous week's print of 242,000 and came in better than the market expectation of 230,000.

Further details of the publication revealed that the advance seasonally adjusted insured unemployment rate was 1.2% and the 4-week moving average stood at 225,500, an increase of 1,250 from the previous week's unrevised average.

"The advance number for seasonally adjusted insured unemployment during the week ending December 7 was 1,874,000, a decrease of 5,000 from the previous week's revised level" the DOL further noted in its publication.

Market reaction

The US Dollar Index showed no immediate reaction to this data and was last seen losing 0.18% on the day at 108.00.

• The USD rallied beyond 2% after the Fed and the BoJ's decisions to hit levels right above 157.00.
• The Bank of Japan left interest rates at 0.25% and conditioned further tightening to the evolution of wage negotiations.
• Monetary policy divergence between the US and the Japanese Central banks is weighing on the Yen.

The Yen is dropping across the board on Thursday, weighed by a dovish BoJ monetary policy decision. This, coupled with the hawkish stance reflected at Wednesday’s monetary policy statement, has pushed the pair to test levels above 157.00.

The Bank of Japan kept its benchmark interest rate unchanged at 0.25% with Governour Ueda failing to clarify whether they will hike rates in January, as some market sources had anticipated.

Ueda warned that prolonged easing conditions may lead to a surge in inflation but he conditioned the next policy decisions on the evolution of the wage negotiations. Investors reacted by selling the Yen against its main rivals.

The Yern was already on its back foot after the outcome of Wednesday’s US Federal Reserve meeting. The bank cut interest rates by 25 basis points but projected two cuts in 2025, instead of the four anticipated in September, which sent US Yields and the USD surging.
 

• EUR/GBP gains sharply to near 0.8260 after the BoE holds interest rates steady at 4.75%, as expected, with a 6-3 vote split.
• BoE Bailey refrained from committing a pre-defined rate cut path.
• The Euro performs strongly despite ECB officials guiding more interest rate cuts.

The EUR/GBP pair climbs to near 0.8260 in Thursday’s North American session. The cross gains after the Bank of England’s (BoE) monetary policy announcement in which it leaves interest rates unchanged at 4.75%.

The BoE was already expected to hold its key borrowing rates steady. However, the vote split came in at 6-3 against 8-1, which suggested that more policymakers were in favor of cutting interest rates. The scenario resulted in selling pressure on the Pound Sterling (GBP). BoE external Monetary Policy Committee (MPC) members Swati Dhingra and Alan Taylor, and Deputy Governor Dave Ramsden proposed a 25-basis points (bps) interest rate reduction.

A majority of BoE officials voted for leaving interest rates steady as United Kingdom (UK) price pressures have accelerated in the past two months amid strong wage growth.

BoE Governor Andrew Bailey refrained from guiding the likely interest rate cuts next year. “Due to heightened uncertainty in the economy, we can't commit to when or by how much we will cut rates in 2025,” he said.

Going forward, investors will focus on the UK Retail Sales data for November, which will be released on Friday. On a monthly basis, UK Retail Sales are estimated to have grown by 0.5% after a 0.7% decline in October.

Meanwhile, the Euro (EUR) outperforms its major peers on Thursday even though European Central Bank (ECB) officials guide further policy easing in 2025. ECB policymakers support more interest rate cuts as Eurozone inflation is broadly under control and potential risks to economic growth have increased due to incoming tariff policies by United States (US) President-elect Donald Trump.

The Euro (EUR) has has recovered on Thursday about half of the sell-off against the US Dollar (USD) seen after the Federal Reserve’s (Fed) policy decision, Scotiabank’s Chief FX Strategist Shaun Osborne notes.  

Gains to remain limited to the low-mid 1.0400 area

“A less accommodative Fed drove short-term EZ/US spreads back to near recent extremes yesterday. Spreads have narrowed modestly today but the wide, 225bps yield gap for 2Y bonds is a major block on any significant improvement in the EUR In the near-term and suggests spot will remain better offered on minor rebounds for the foreseeable future.”

“Minor gains in the EUR seen overnight appear corrective as the market’s consolidate yesterday’s heavy losses. Spot losses did hold near the November low (1.0335 – major support now) yesterday but there is little in the intraday price charts to suggest a turn around in the EUR’s technical fortunes at this point.”

“Gains are likely to remain limited to the low/mid-1.04 area. A clear move back above 1.0450 is needed to drive a deeper rebound towards 1.05/1.06.”

The BoE left its policy rate unchanged at 4.75%, as expected. The Pound Sterling (GBP) has traded well off the earlier session highs to edge back under 1.26 in early trade here, Scotiabank’s Chief FX Strategist Shaun Osborne notes.  

GBP dips after BoE leaves policy unchanged

“c. The policy statement reaffirmed recent policymakers’ comments, noting that a ‘gradual approach’ to future policy cuts was the right approach. The Bank said it could not commit to when or by how much it would ease policy next year. Sterling weakened on the announcement.”

“GBP has traded well off the earlier session highs to edge back under 1.26 in early trade here. Spot trends are weak and momentum favours more USD gains. Cable looks poised to test major trend support at 1.2520 shortly. Resistance is 1.2650/60.”

• The US Dollar retreats from a two-year high, a rally that was driven by the Fed signaling fewer interest-rate cuts ahead. 
• The Fed’s dot plot shows concerns on more sticky inflation throughout 2025.
• The US Dollar Index (DXY) is trading around 108.00, in search of nearby support. 

The US Dollar (USD) is facing some quick profit-taking on Thursday, with the DXY Index hovering at around 108.00, after its sizable upward move on Wednesday on the back of the Federal Reserve (Fed) interest-rate decision. The rate cut by 25 basis points, lowering the policy rate to the 4.50%-4.75% range, was already long priced in. Markets got spooked by the retreat in the number of projected rate cuts for 2025 from four to only two. 

It appears that members of the Federal Open Market Committee (FOMC) are concerned about the continuation of the disinflationary path. The recent commitments from President-elect Donald Trump are clearly alive in the minds of the Federal Reserve members. Prospects of fewer rate cuts in 2025 widen the rate differential even more between the US and other countries in favor of a stronger US Dollar. 

The US economic calendar is further winding down towards the Christmas lull. On Thursday, the third reading for the US Gross Domestic Product is due, as well as the weekly Jobless Claims. The Philadelphia Fed Manufacturing Survey and the Kansas Fed Manufacturing Survey might trigger some last moves. 

Daily digest market movers: Not much expected from US GDP

• A government shutdown is looming in the US. Both the House of Representatives and the Senate are rushing to pass a stopgap bill. Meanwhile, President-elect Donald Trump already said he opposed the bill, according to Fox News. 
• A chunky batch of data will be released at 13:30 GMT:
  • Weekly Jobless Claims:
    • Initial Jobless Claims should decline to 230,000 for the week ending December 6 from 242,000 the week before.
  • The third reading for the Gross Domestic Product for the third quarter will be released as well.
    • Economists don’t expect revisions, with annualized GDP growth steady at 2.8%, headline Personal Consumption Expenditures (PCE) Price Index unchanged at 1.5%, core PCE stable at 2.1%, and GDP Price index also unchanged at 1.9%.
  • The Philadelphia Fed Manufacturing Survey for December is expected to move out of contraction to a positive 3 against the previous -5.5.
• At 16:00 GMT, the Kansas Fed Manufacturing Activity for December will be issued. The previous reading showed a contraction at -4.
• Equities in Europe and Asia are falling in the wake of the Fed rate decision. US futures, meanwhile, are trying to recover after their correction from Wednesday and are overall up by less than 0.50%.
• The CME FedWatch Tool for the first Fed meeting of 2025 on January 29 sees a 91.4% chance for a stable policy rate against a small 8.6% chance for a 25 basis points rate cut.  
• The US 10-year benchmark rate trades at 4.54%, a fresh seven-month high. 

US Dollar Index Technical Analysis: Take the money and run

The US Dollar Index (DXY) appears to have played its last hand for 2024. After the Fed rate decision and the release of the dot plot, the DXY increased to a fresh two-year high at 108.28 to later suffer from profit taking. The expectation is that the DXY might correct further until 107.35 or even 106.52 before finding solid support. 

A fresh set of levels need to be defined to the upside. The first up is 109.29, which was the peak of July 14 2022 and has a good track record as a pivotal level. Once that level is surpassed, the 110.00 round level comes into play. 

Under the pressure of some profit taking, the DXY could now look for some solid support. The first downside barrier comes in at 107.35, which has now turned from resistance into support. The second level that might be able to halt any selling pressure comes in at 106.52. From there, even 105.53 could come under consideration while the 55-day Simple Moving Average (SMA) at 105.23 is making its way up to that level. 

US Dollar Index: Daily Chart

The CAD has recovered about half of the post-FOMC drop seen yesterday afternoon. Political uncertainty is not exclusive to Canada, with a deal to avoid a US government shutdown at the weekend failing after President-elect Trump criticized the plan Scotiabank’s Chief FX Strategist Shaun Osborne notes.  

CAD steadies on the day

“Lawmakers have limited time to come up with a workable alternative. At this point, a lengthy government shutdown seems unlikely but the issue is helping take some of the heat off the CAD, if only temporarily. Scope for CAD gains is limited by the weak risk backdrop and firmer US yields. USD dips to the low/mid 1.43s are likely to remain well supported for now.”

“The USD is consolidating yesterday’s solid gains. Spot has drifted back somewhat from Wednesday’s peak and short-term price signals are leaning bearish, with the market forming an “evening star” reversal pattern on the intraday candle chart.”

“USD losses may extend to test minor support at 1.4320 but a bullish alignment of trend strength signals on the short-, medium– and longterm oscillators suggest that scope for USD losses is limited.”

The Fed delivered a ‘hawkish’ cut yesterday that was a tad more hawkish than the markets were prepared for. Along with the expected 1/4-point cut, the dot plot shifted higher, reflecting only two anticipated cuts next year and a higher median long run rate (3%), Scotiabank’s Chief FX Strategist Shaun Osborne notes.  

USD edges lower as threat of US government shutdown curbs gains

“Notably, there was dissent—Cleveland Fed President Hammack voted for no change and three other non-voting policymakers also favoured a hold. Chair Powell remarked in his press conference that this decision was a “closer call”. The policy statement modified the forward-guidance to stress officials will consider the “extent and timing” of future adjustments to suggest a slower pace of easing, which Powell effectively confirmed in his press conference.”

“The bar to another cut in the next few months looks quite high; swaps suggest it may be June or July before the Fed eases again. The USD jumped in response to the Fed and, despite some losses so far today, looks poised to remain strong, with the support of firm or firmer US yields. The threat of a US government shutdown may impede the USD’s progress in the short run but the DXY continues to track a similar path to its post-2016 election trend. Uncanny.”

“The JPY is the main underperformer on the day, sliding 1.4% after BoJ left policy on hold and remained cautious on the rate outlook. Final US Q3 GDP is expected to be left unrevised at 2.8%, ditto for the core PCE at 2.1%. Weekly claims, regional Fed manufacturing surveys, Leading Indicators, Existing Home Sales and TIC flows data round out the US releases. The street is looking for Banxico policymakers to cut the Overnight Rate 25bps to 10% but a larger, 50bps, cut may be a risk.”

• Oil prices recover on Thursday after three consecutive days in the red. 
• Bloomberg calculates that the US Crude inventories might face sharp daily drawdowns in 2025.
• The US Dollar Index trades at two-year highs around 108.00 after the Fed’s hawkish tilt. 

Crude Oil prices recover some of the initial weekly losses on Thursday, with the reference for the US Oil West Texas Intermediate (WTI) heading back to $70.00 on the back of some support provided by a Bloomberg Intelligence article.  US commercial crude inventories could decline by roughly 537,000 barrels a day in 2025, according to the Bloomberg supply and demand calculator. Although President-elect Donald Trump has promised to drill more domestic Oil, it will take several months or years before those new sites and wells become fully operational, while demand is set to pick up under Trump’s reform programs. 

The US Dollar Index (DXY) – which measures the performance of the US Dollar (USD) against a basket of currencies – retreats from a fresh over-two-year high reached on Wednesday, falling back below 108.00 as traders unwind or reduce their Greenback exposure with year-end in sight. The last stretch higher came after the Federal Reserve (Fed) lowered its policy rate by 25 basis points as expected. However, the central bank became hawkish by signaling fewer rate cuts in 2025, possibly only two from the four previously forecasted.

At the time of writing, Crude Oil (WTI) trades at $69.90 and Brent Crude at $73.06.

Oil news and market movers: Kazakhstan defies OPEC

• Drillers in North Dakota at the Bakken Oil formation produced 1.178 million barrels per day in October, the lowest since July, according to the state data, Reuters reports. Production fell by 1.8% against the previous month and 6.2% against last year. 
• China’s biggest Oil refiner said the country’s gasoline demand peaked last year and declines would accelerate as the shift to electric vehicles gathers pace, Bloomberg reports. 
• Nigerian President Bola Tinubu is banking on an increase in Oil revenue to help fund record spending outlined in the 2025 budget presented to parliament on Wednesday.  The government envisions spending 49.7 trillion naira ($32 billion) and collecting 34.8 trillion naira of revenue in the fiscal year starting January 1, Bloomberg reports. 
• Glencore Plc has become an active buyer of spot Oil cargoes from the Middle East for December, as the merchant starts procuring crude for the Bukom refinery in Singapore, according to traders, Reuters reports.

Oil Technical Analysis: Final stab at $70.00

Crude Oil prices might see a simmering of hope for some upside potential in 2025. President-elect Donald Trump might be ready to pump more Oil in the US, though several shale projects still need to be developed and excavated before they become fully operational. With expectations that demand will be boosted once Trump takes office in January, some upside might take place in the first quarter or first half of 2025.

Looking up, $71.46 (February 5 low) and the 100-day Simple Moving Average (SMA) at $70.88 act as firm resistance levels. If Oil traders can plow through those levels, the next pivotal level will be $75.27 (January 12 high). However, watch out for quick profit-taking as the year-end quickly approaches. 

On the downside, the 55-day SMA at $70.02 has been chopped up too many times this week and has lost relevance for now. That means that $67.12 – a level that held the price in May and June 2023 and during the last quarter of 2024 – is still the first solid support nearby.  In case that breaks, the 2024 year-to-date low emerges at $64.75, followed by $64.38, the low from 2023.

US WTI Crude Oil: Daily Chart

• The Aussie corrects higher following a sharp sell-off on Wednesday but maintains its negative trend intact.
• A hawkish Fed stance boosted risk aversion and sent the Aussie to fresh two-year lows on Wednesday.
• Investors see the t RBA cutting rares ahead of schedule, which is weighing on the AUD.

The Australian Dollar is trading with minor gains on Thursday, bouncing up from multi-year lows at 0.6200, following a sharp sell-off after Wednesday’s monetary policy decision by the Fed.

The US central bank cut interest rates by 25 basis points to 4.25%, as widely expected but signaled a slower monetary easing path next year which boosted risk aversion and sent the Aussie tumbling.

US inflation and GDP growth expectations for next year have been revised higher, while unemployment is seen growing at a slower pace. All in all suggesting that the bank will take a long break before cutting rates again.

In Australia, the Consumer inflation expectations increased to 4.2%, from the 3.8% level seen in November: The Aussie, however, remains vulnerable with the market foreseeing a worsening economic scenario that will force the RBA to cut rates ahead of schedule.
 

• The Mexican Peso trims some losses against the US Dollar with all eyes on Banxico’s decision.
• A “hawkish cut” by the Fed on Wednesday boosted the US Dollar across the board.
• Technically, the USD/MXN is under an increasing bullish momentum above 20.30.

The Mexican Peso (MXN) trades with marginal gains against the US Dollar (USD) on Thursday after dropping to three-week lows near 20.40 the previous day. A hawkish cut by the Federal Reserve (Fed) on Wednesday, combined with uninspiring data from Mexico, keeps the MXN on its back foot ahead of the Bank of Mexico’s (Banxico) monetary policy decision.

A poll of analysts released by Citibank revealed a widespread view that the Mexican central bank would follow the Fed’s steps and cut rates by 25 basis points (bps). The analysts underscore that the lower inflationary pressures and a softer economic outlook put pressure on Banxico to ease borrowing costs.

The Federal Reserve cut interest rates as expected, but its monetary policy statement and Chairman Jerome Powell´s press conference were tilted to the hawkish side. The central bank raised next year’s inflation and growth expectations and signaled a slower easing path.
 

Monetary policy divergence will likely weigh on the MXN

• The US Dollar Index (DXY) surged to test two-year highs following the Fed´s monetary policy decision, and it is likely to remain firm unless US data contrasts the Fed’s strong economic projections.
• 
   
• The Bank of Mexico is widely expected to cut rates by 0.25% to 10% later on Thursday. This will be the fifth rate cut this year, with more expected to come in 2025.
   
• In the US, the Fed cut rates by 25 bps to the 4.25%-4.50% range on Wednesday, but the interest rate projections for 2025 were raised to 3.9% from 3.4%. This means two more rate cuts next year, instead of the four anticipated in September.
   
• The Fed lifted next year’s inflation expectations to 2.5% from the 2.1% estimated in September, with some analysts anticipating the impact of US President-elect Donald Trump’s inflationary policies.
   
• US economic growth was revised to 2.5% this year and 2.1% in 2025, from September’s forecasts of a steady 2.0% GDP this year and the next.
   
• The reaction to the US central bank’s decision boosted risk aversion and sent the US Treasury yields and the US Dollar rallying. The yield for the benchmark 10-year note surged to six-month highs above 4.50%, from 4.13% lows last week.
   
• In Mexico, Retail Sales dropped unexpectedly by 0.3% in October, against expectations of a 0.2% increase. Retail consumption moderated its yearly decline to 1.2% from 1.5% in the previous month, against expectations of a 1.6% fall.
   
• According to a survey from Citi, analysts expect Banxico to cut interest rates to 10.00% on Thursday and 150 bps further to 8.5% next year.
   
• The same survey reveals that market analysts expect the US Dollar to appreciate to 21.00 Mexican Pesos next year, with the Mexican economy slowing down to a 1.6% yearly growth in 2024 and 1.2% in 2025.

Mexican Peso technical outlook: USD/MXN breaks higher, 20.60 resistance comes into focus

USD/MXN has broken above the top of the last two weeks’ horizontal channel at 20.30 and is consolidating gains below the 20.40 area, with the December 2 high at 20.60 on sight.

Technical indicators show increasing bullish momentum, with price action above the 4-hour 100 Simple Moving Average (SMA) and the Relative Strength Index (RSI) still below overbought levels.

Support levels are at the top of the last two weeks’ channel at 20.30, ahead of the key 20.00 level. On the upside, resistances are at the mentioned 20.60, ahead of the November 6 and 26 highs at 20.80. 

USD/MXN 4-Hour Chart

And for those who still haven't had enough of central banks, there are three more meetings today. The first will be the Swedish Riksbank, which will announce its interest rate decision at 9:30 a.m., Commerzbank’s FX analyst Volkmar Baur notes.

Thee more central banks to watch

“We, the market and most economists expect the key rate to be cut by 25 basis points to 2.5%. The likelihood of a surprise is low, so it will probably depend more on how the Riksbank views the coming year. New forecasts and a new interest rate path should provide some clues here. The market currently sees the terminal rate in Sweden at around 2%. Should the Riksbank signal something more dovish, short-term SEK weakness would be likely.”

“Half an hour later, the Norwegian central bank will follow. However, interest rates are likely to remain unchanged. Here, too, the outlook for the coming year and when Norges Bank can imagine lowering interest rates for the first time in this cycle will be more important. We still expect March, as a change in the current rhetoric would be inappropriate given that inflation remains too high and the economy is stable.”

“The Old Lady from Threadneedle Street will then conclude. However, we do not expect the Bank of England to change the key rate so close to the end of the year either. Although yesterday's inflation reading was slightly below analysts' expectations, the stronger fiscal impulse expected next year has pushed up growth and inflation expectations, which is why the central bank will exercise caution today. This caution is likely to continue in the coming year, which should support the pound against the euro in 2025.”

• Silver price finds an interim cushion near $29.25 but its outlook remains vulnerable.
• Higher bond yields due to the Fed’s hawkish guidance have weighed on the Silver price.
• The Fed sees only two interest rate cuts in 2025.

Silver price (XAG/USD) finds temporary support near $29.25 on Thursday after plunging almost 4% on Wednesday. The outlook of the white metal remains bearish as the Federal Reserve (Fed) has signaled fewer interest rate cuts for 2025 after cutting them by 25-basis points (bps) to 4.25%-4.50%.

The Fed's hawkish remarks for the next year have resulted in a rally in the US Dollar (USD) and Treasury yields. The US Dollar Index (DXY), which tracks the greenback’s value against six major currencies, dropped to near 107.90 in Thursday’s European session after refreshing a two-year high of around 108.30.

10-year US Treasury yields advance above 4.50%. Higher yields on interest-bearing assets increase the opportunity cost of holding an investment in non-yielding assets, such as Silver.

The Fed’s dot plot showed that policymakers see the Federal Funds rate heading to 3.9% by 2025, suggesting two interest rate cuts next year. In the September meeting, officials had forecasted four interest rate cuts collectively.

The Fed guided a slower policy-easing cycle as the United States (US) inflationary pressures appear to have stalled in the past few months. Meanwhile, Fed Chair Jerome Powell acknowledged that strong growth in the second half of the year is a major reason to move cautiously on interest rates.

Silver technical analysis

Silver price slides to near the 200-day Exponential Moving Average (EMA), which trades around $29.40. The white metal weakened after breaking below the November low of $29.65. The asset has also tested the upward-sloping trendline around $29.50, which is plotted from the February 29 low of $22.30

The 14-day Relative Strength Index (RSI) dropped inside the bearish 20.00-40.00 range, indicating a downward trend ahead.

Looking down, the September low of $27.75 would as key support for the Silver price. On the upside, the 50-day EMA around $31.00 would be the barrier.

Silver daily chart

• Gold bounces up from oversold levels to pare back post-Fed losses.
• A strong US Dollar and higher US yields weighing on Gold’s recovery.
• XAU/USD remains under pressure, with resistances at $2,625 and $2,6660 likely to cap upside attempts.

Gold (XAU/USD) trades higher on Thursday, regaining some of the ground lost on Wednesday after the Federal Reserve’s (Fed) monetary policy decision. At the time of writing, the precious metal has reached the $2,620 area after bouncing from $2,580 lows the prior day.

The Fed cut rates as expected but raised its growth and inflation expectations and scaled down the interest rate cut projections for next year. This, coupled with an unusually hawkish tone from Fed Chairman Jerome Powell, triggered a risk-averse reaction, sending the US Dollar Index (DXY), which tracks the USD value against six major currencies, to test two-year highs and crushing Gold and equities.

Higher US yields and a strong USD are likely to limit Gold’s recovery 

• As widely expected, the Federal Reserve cut rates by 25 basis points (bps) to the 4.25%-4.50% range on Wednesday. However, policymakers slashed their easing projections to just two rate cuts in 2025 from the four cuts estimated in September.
   
• Next year’s Personal Consumption Expenditures (PCE) inflation expectations were increased to 2.5% from 2.1% in September. Chairman Powell suggested that some officials considered the impact of Trump’s policy expectations on their inflation projections.
   
• Likewise, US economic growth expectations were revised to 2.5% this year and 2.1% in 2025, from previous estimations of steady 2.0% GDP growth in both years.
   
• The labour market is also expected to be more resilient. The unemployment rate is expected to be 4.2% this year and 4.3% next year, down from the 4.4% previously foreseen for those two years.
   
• The central bank’s projections and an unusually hawkish tone from Fed Chairman Jerome Powell sent US Treasury yields rallying. The benchmark 10-year yield has reached levels above 4.5% after rallying about 40 basis points from last week’s lows.
   
• In the US, the focus now is on Friday’s US Personal Consumption Expenditures (PCE) Prices Index figures for November to compare them with the bank’s inflation expectations. A softer-than-expected reading would ease the risk-averse mood and provide some support for Gold.

Technical analysis: XAU/USD’s upside attempts will likely be capped below $2,625 or $2,660 

Gold is experiencing a corrective recovery after having wreaked heavily oversold levels, but the broader trend remains bearish. The impulsive bearish candle in the daily chart printed on Wednesday highlights the negative momentum and gives sellers fresh hope.

Price action is struggling to overcome the previous support, now turned resistance at the $2,625-$2,630 area (November 28, December 2 lows). Above this, the next target will be the December 17 high at $2,650. On the downside, supports are at Wednesday’s low of $2,580, ahead of November’s trough at $2,540.
 

XAU/USD 4-hour Chart

Just a few hours after the Fed, the Bank of Japan (BoJ) also announced its last monetary policy decision for this year, leaving its key interest rate unchanged at 0.25%. In the wake of the hawkish interest rate cut in the US and the unchanged rate in Japan, the Japanese Yen (JPY) therefore weakened only slightly against the US Dollar (USD) this morning, rising to over USD/JPY 155, Commerzbank’s FX analyst Volkmar Baur notes.

BoJ interest rates are set to continue rising

“In view of the comments made in recent weeks, an increase had become very unlikely, which had already had an effect on USD/JPY. In the wake of the hawkish interest rate cut in the US and the unchanged rate in Japan, the JPY therefore weakened only slightly against the USD this morning, rising to over USD/JPY 155.”

“BoJ also published a 200+ page review of Japanese monetary policy over the last 25 years. Based on the summary on the first pages, it contains no particular surprises. However, one sentence does stand out. It states that it would be desirable to conduct monetary policy in such a way that the zero lower bound would not be reached.”

“We therefore continue to assume that there is a willingness for further interest rate hikes and expect a move in January. Subsequently, however, we continue to assume that the economic environment will hardly allow more than one move and that it will therefore be a one and done. A temporary yen strength at the beginning of the new year is therefore quite likely.”

• GBP/JPY surges to near 198.80 as BoJ didn’t provide a timeframe for interest rate hikes after keeping them steady at 0.25%.
• The BoJ is worried about potential risks from incoming US protectionism policies under the leadership of Donald Trump.
• Investors await the BoE policy in which the central bank is expected to leave interest rates unchanged at 4.75%.

The GBP/JPY pair rallies to near 198.80 in Thursday’s European session. The cross strengthens after the Bank of Japan’s (BoJ) monetary policy announcement in which the central bank left interest rates unchanged at 0.25%, as expected. Eight members of the Monetary Policy Committee (MPC) supported keeping interest rates steady, while policymaker Naoki Tamura, a known policy hawk, proposed raising them by 25 basis points (bps) to 0.5%.

BoJ Governor Kazuo Ueda acknowledged that incoming policies from United States (US) President-elect Donald Trump when he will take office could pose a risk to Japan’s economic outlook. Ueda kept doors open for interest rate hikes in 2025 as he said, "If the economy and prices move in line with our forecast, we will continue to raise our policy rate”. He refrained from committing a timeframe for policy adjustment.

Investors brace for more volatility in the Japanese Yen (JPY) as the National Consumer Price Index (CPI) data for November is lined up for release on Friday. The inflation report is expected to show that the National CPI, excluding Fresh food, accelerated to 2.6% from 2.3% in October.

Meanwhile, the Pound Sterling (GBP) performs strongly against a majority of peers ahead of the Bank of England’s (BoE) interest rate decision at 12:00 GMT. The BoE is widely expected to opt for leaving interest rates steady at 4.75%. Therefore, investors will focus more on BoE’s guidance on interest rates for 2025.

Out of the nine-member Monetary Policy Committee (MPC), only policymaker Swati Dhingra is expected to propose easing interest rates by 25 bps.

The Czech National Bank is very likely to take the first pause in the cutting cycle on Thursday and leave rates unchanged at 4.00%, ING’s FX analyst Frantisek Taborsky notes.

Communication set to focus on the February forecast

“The main reason is likely rising headline inflation, which is expected to exceed 3% in December although core inflation remains close to the central bank's 2% target. The December meeting will only offer an update to the November forecast. Thus, the main focus will be the press conference and the question of the February meeting. Our economists believe the pause will continue through February and only the March meeting is live for another rate cut.”

“However, January inflation is expected to return to below 3% and risks have been pointing down in recent weeks. Therefore, we believe the February meeting is live and so today we will be looking to see how likely that is. The market has gone too far with hawkish pricing with roughly one rate cut by the May meeting next year in our view. We think interviews have shown a still CNB board in a cutting mode.”

“Therefore, we believe the communication today will focus on the February forecast and the January inflation print. At the same time, the vote split in our view adds dovish risk for today with 7-0 as a baseline but a decent chance of seeing one or two votes for a rate cut as well. Overall, we prefer to be on the dovish side given market pricing in rates and expect weaker FX after the meeting today.”

USD/SGD rose another leg higher, as USD strength post-FOMC overwhelmed. Pair was last seen trading at 1.3615, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Near term pullback move lower is possible

“Daily momentum turned bullish while RSI rose into overbought conditions. Not ruling out pullback move lower in the near term but dips may still find support. Resistance at 1.3620, 1.3670 levels. Support at 1.3510, 1.3460 (21 DMA).”

“S$NEER weakened with our S$NEER index now closer to May-2024 levels. % deviation from model-implied mid has also ease to around 0.64%.”

Ruble weakness following the latest round of US sanctions makes a large rate hike in December very likely. This Friday, Russia’s central bank (CBR) is expected to hike its key rate by 200bp to 23.0%, Commerzbank’s FX analyst Tatha Ghose notes.

CBR set to continue hiking rates

“Since our earlier assessment, inflation has significantly accelerated because of a food price spike across the region and also because of FX pass-through, with seasonally-adjusted inflation reaching 15%-16% (annualized), while even the regular year-on-year inflation figure has reached near 10%. Given CBR’s orthodox, uncompromising attitude, a large rate hike has to be the base-case.”

“Some think that higher interest rates will not solve any problem at this current juncture because of the ‘war-time’ structure of economic demand, with prioritized state activities being simply inelastic to interest rates. What is more, the FinMin has recently taken steps to reduce interest rate subsidies on corporate lending, which had earlier been a prominent counter to higher interest rates. Finally, in recent months, we can observe sharp deceleration in household lending and also some deceleration in corporate lending beginning November.”

“In our view, CBR will continue to hike rates regardless of such opposing arguments. We do not anticipate a reversal of Ruble depreciation as a consequence of monetary tightening. The exchange rates we observe today are technical fixes, with only weak links to interest rates or other fundamentals at this point.”

The latest macro indicators have all but reinforced expectations that the Bank of England (BoE) will keep rates on hold on Thursday. In this context, the EUR/GBP pair is set to stay capped below 0.8300 in the coming weeks, ING’s FX analyst Francesco Pesole notes.

EUR/GBP to stay capped below 0.8300 in near term

“The focus will be on any tweaks to forward-looking language and the vote split (which we expect at 8-1 hold-cut). There is no press conference scheduled for this meeting. Our perception is that the BoE will try to make this announcement a non-event, offering cautious signals for further easing down the road but still highlighting stickiness in services inflation and wages.”

“We don’t see the pound being hugely impacted today, and the near-term outlook remains positive for the currency – at least until a fresh round of UK data potentially throws the latest hawkish repricing into question.”

“We see EUR/GBP staying capped below 0.8300 in the coming weeks.”

• The Pound Sterling advances against most of its peers as the BoE is expected to keep borrowing rates steady at 4.75%.
• UK inflation has accelerated in the past two months, supporting the BoE's decision to keep interest rates steady.
• The Fed cut interest rates by 25 basis points to 4.25%-4.50% but delivered hawkish guidance for 2025.

The Pound Sterling (GBP) performs strongly against its major peers, except the Euro (EUR), ahead of the Bank of England’s (BoE) monetary policy decision, which will be announced at 12:00 GMT. The BoE is expected to leave interest rates unchanged at 4.75% with an 8-1 vote split. The Monetary Policy Committee (MPC) member who is expected to vote for a 25-basis points (bps) interest rate reduction is Swati Dhingra, who has been consistently supporting a more expansionary policy stance.

The BoE is almost certain to keep interest rates steady as inflationary pressures in the United Kingdom (UK) have accelerated in the last two months. The UK Consumer Price Index (CPI) data for November showed that annual headline inflation accelerated to 2.6%, as expected, from 2.3% in October. The core CPI—which excludes volatile items such as food, energy, alcohol, and tobacco—rose to 3.5% from the former reading of 3.3%.

Investors will pay close attention to BoE’s guidance on the policy outlook. "We think it's too early for the BoE to pre-commit to a sustained cutting cycle or to conclude that risks to inflation returning sustainably to the 2% target in the medium term have dissipated," analysts at Bank of America (BofA) said. 

According to market expectations, the BoE is expected to cut interest rates three times in 2025.

On the economic data front, investors will focus on the UK Retail Sales data for November, which will be released on Friday. Retail Sales, a key measure of consumer spending, are expected to rise by 0.5% on month after declining by 0.7% in October.

Daily digest market movers: Pound Sterling gains against USD, but broader outlook remains bearish

• The Pound Sterling recovers to near 1.2660 against the US Dollar (USD) in Thursday’s London session after plunging to near 1.2560 on Wednesday. The GBP/USD pair rebounds as the US Dollar’s (USD) rally has paused after refreshing a two-year high. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, edges lower but holds the key support of 108.00.
• The Greenback soared as the Federal Reserve (Fed) signaled fewer interest rate cuts for 2025 after cutting them by 25 bps to 4.25%-4.50%. The Fed’s dot plot showed that policymakers see Federal Fund rates heading to 3.9% in 2025, upwardly revising the projections from the 3.4% estimated in September.
• Fed Chair Jerome Powell said at the press conference that economic strength gives the Fed the ability to approach rate cuts cautiously. When asked about the inflation outlook, Powell said he expects “inflation to continue to come down toward the 2% goal, on a 'sometimes bumpy' path”. Meanwhile, the Federal Open Market Committee (FOMC) has also raised core Personal Consumption Expenditure inflation (PCE) projections for 2025 to 2.5% from 2.2% in its latest economic projections.
• Analysts at Monex Europe expect the Fed to hold interest rates at their current levels at least through the first half of 2025.

Technical Analysis: Pound Sterling recovers from 1.2550

The Pound Sterling recovers sharply after refreshing a three-week low near 1.2555 against the US Dollar on Thursday. The GBP/USD pair rebounds as the upward-sloping trendline, which is plotted from October 2023 low around 1.2035, remains a key support zone below 1.2600.

The 14-day Relative Strength Index (RSI) hovers near 40.00. A breakdown below the same could trigger a downside momentum.

A death cross, represented by the 50-day and 200-day Exponential Moving Averages (EMAs) near 1.2790, suggests a strong bearish trend in the long run.

Looking down, the pair is expected to find a cushion near the psychological support of 1.2500. On the upside, the 200-day EMA near 1.2815 will act as key resistance.

Silver prices (XAG/USD) rose on Thursday, according to FXStreet data. Silver trades at $29.57 per troy ounce, up 0.32% from the $29.48 it cost on Wednesday.

Silver prices have increased by 24.28% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 88.60 on Thursday, up from 87.95 on Wednesday.

(An automation tool was used in creating this post.)

BoE set to keep rates steady at 4.75%. The GBP/USD pair was last seen at 1.2651, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Near term consolidation likely

“The last MPC meeting (November) saw BoE putting an emphasis on making sure inflation stays close to target. This reinforces the view for a gradual approach to removing restraint. GBP fell amid USD strength post-FOMC while UK CPI was modestly softer than expected.”

“Mild bullish momentum on daily chart is fading but decline in RSI slowed. Consolidation likely. Support at 1.2570 (76.4% fibo), 1.2490 levels. Resistance at 1.2670 (21 DMA), 1.2730 (61.8% fibo retracement of 2024 low to high), 1.2830 levels (50, 200 DMAs).”

• USD/CHF retreats after hitting its five-month high at 0.9021 on Thursday.
• The Fed’s ‘dot-plot’ suggested only two rate cuts in 2025.
• The Swiss trade surplus narrowed to 5,424 million in November, down from the previous surplus of 8,025 million.

USD/CHF edges lower following Switzerland’s trade balance data released on Thursday. The pair trades around 0.8970 during the European hours after pulling back from five-month high at 0.9021.

Additionally, the USD/CHF appreciated as the US Dollar (USD) strengthened following the Federal Reserve’s (Fed) hawkish 25 basis point (bps) rate cut at its December meeting, bringing the benchmark lending rate to a range of 4.25%-4.50%, marking a two-year low.

The US Dollar Index (DXY) reached 108.28, the highest level not seen since November 2022, on Thursday as the Fed’s Summary of Economic Projections, or ‘dot-plot’, suggested only two rate cuts in 2025, down from four cuts projected in September.

Additionally, Fed Chair Jerome Powell stated that the Fed will be cautious about further cuts as inflation remains stubbornly above the central bank’s 2% target. Traders are highly expected to focus on upcoming US economic data, including weekly Initial Jobless Claims, Existing Home Sales, and the final Q3 Gross Domestic Product (GDP) Annualized reading, scheduled for release on Thursday.

Switzerland's Trade Balance, released by the Federal Customs Administration, showed a narrowing surplus of 5,424 million in November, down from 8,025 million in October. On a month-on-month basis, exports declined to 23,682 million, while imports fell to 18,257 million.

The Swiss Franc (CHF) remains under pressure as the Swiss National Bank (SNB) reaffirmed its commitment to maintaining price stability over the medium term, signaling readiness to adjust monetary policy if needed. Switzerland's State Secretariat for Economic Affairs (SECO) has downwardly revised growth targets for the current year and 2025 to 0.9% and 1.5%, respectively.

EUR/USD took another hit after the Fed. As discussed above we expect the shift in language by Powell to favour a longer period of dollar dominance and keep the Atlantic Spread wide. All this reinforces our view that EUR/USD will keep sliding lower in the coming weeks, and we expect to see the 1.02-1.03 levels being tested. Elsewhere in Europe, we’ll see central bank announcements in Sweden and Norway this morning. We expect a 25bp cut by the Riksbank and a hold by Norges Bank, ING’s FX analyst Francesco Pesole notes.

EUR/NOK close to 11.80 is unwelcome by Norges Bank

“Forward-looking activity indicators are starting to paint a more optimistic picture in Sweden and inflation has come in hotter than expected of late. However, growth was soft in October. While the end of the easing cycle is in sight (we think rates will bottom at 2%), another cut today seems plausible given the Riksbank’s greater focus on growth and still dovish communication. Anyway, that is a consensus view and we don’t expect major deviations from 11.50 in EUR/SEK near term.”

“In neighbouring Norway, concerns about an excessively weak NOK have somewhat eased, but EUR/NOK close to 11.80 is still unwelcome by Norges Bank. A re-acceleration to 3.0% in core CPI in November should allow NB to keep supporting the currency via an unchanged policy rate for a bit longer.”

“We still think a cut can come in 1Q25, but that may start to be a closer and closer call. EUR/NOK continues to have good downside potential on fundamentals, but the patchy external environment ahead of Trump’s inauguration should keep NOK bulls satisfied with some stability at best.”

FX markets received a wakeup call from a hawkish Fed, with USD up over 1% overnight post-FOMC. December seasonality of US Dollar (USD) softness doesn’t seem to apply for Dec-2024 so far. The Dollar Index (DXY) was last at 108 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

USD can weaken from current highs

“The last time we saw an up month for December was about 8 years ago in 2016. Precious metals were the worst hit, with gold under 2600 at one point overnight. This is consistent our near-term challenging outlook for gold, given the risk of Fed slowing pace of cuts. To recap, FOMC guided for a slower pace of rate cut for 2025 and even 2026 (2 cuts each year). The quantum of rate cuts has also been reduced for the cycle.”

“Although markets have earlier anticipated for 2 cuts, the hawkish outcome saw further hawkish re-pricing. Markets are now not fully pricing another cut until July or Sep with only 32bp now priced for whole of 2025. In other words, markets are pricing Fed to pause cut cycle for the next 7 or 9 months – a rather hawkish stance against the backdrop of cooling labour market. That said, market pricing can be fluid.”

“If NFP comes in with slower job creation or even core PCE data comes in softer than expected, then rate cut expectations can adjust again and the USD can weaken from current highs. Daily momentum turned mild bullish while RSI rose to near overbought conditions. Not ruling out a pullback given the sharp move. Resistance at 108.20, 109 levels. Support at 107.20, 106.70 (21 DMA).”

• USD/CAD retreats after touching a fresh multi-year peak earlier this Thursday.
• The overbought RSI prompts some profit-taking amid subdued USD price action.
• The recent breakout through an ascending trend channel favors bullish traders.

The USD/CAD pair extends its steady intraday retracement slide from the highest level since March 2020 and drops back closer to the 1.4400 mark during the first half of the European session on Thursday. The uptick could be attributed to some profit-taking amid the overbought conditions on the daily chart, though the fundamental backdrop seems tilted firmly in favor of bulls. 

The Federal Reserve (Fed) offered a more hawkish view and signaled a cautious path of policy easing next year, which remains supportive of a further rise in the US Treasury bond yields to a multi-month peak. Apart from this, geopolitical risks and trade war fears should continue to act as a tailwind for the US Dollar (USD). Apart from this, the political crisis in Canada, the Bank of Canada's (BoC) dovish stance and a downtick in Crude Oil prices could undermine the commodity-linked Loonie. This might contribute to limiting the downside for the USD/CAD pair. 

From a technical perspective, the Relative Strength Index (RSI) remains above the 70 mark and prompts some long unwinding around the USD/CAD pair. That said, this week's breakout through a multi-week-old ascending channel was seen as a key trigger for bullish traders and supports prospects for the emergence of dip-buying at lower levels. Hence, any further corrective slide below the 1.4400 round figure is likely to find decent support and remain limited near the aforementioned ascending trend-channel breakout point, around the 1.4335-1.4330 region. 

This is closely followed by the 1.4300 mark, which if broken decisively might prompt some technical selling and drag the USD/CAD pair to the next relevant support near the 1.4250 horizontal zone. The downward trajectory could extend further towards the 1.4220-1.4215 region en route to the 1.4200 round figure. 

On the flip side, the 1.4450 zone now seems to act as an immediate hurdle. Some follow-through buying beyond the 1.4465 area, or the multi-year top, should allow the USD/CAD pair to reclaim the 1.4500 psychological mark. The subsequent move-up has the potential to lift spot prices to the 1.4560 intermediate hurdle en route to the 1.4600 round figure and March 2020 swing high, around the 1.4665-1.4670 region.

USD/CAD daily chart

The Bank of Japan announced policy, delivering a rather cautious hold which has been digested as a dovish surprise by markets, ING’s FX analyst Francesco Pesole notes.

Direction of travel for USD/JPY looks clearly towards the 158/160 area

“Consensus was indeed for a hold today but probably expecting more openness towards a hike in January. Governor Kazuo Ueda sounded more data-dependent than forward-guidance-orientated, saying additional information on wages and growth is needed.”

“USD/JPY has surged through 155 on the back of the hawkish Fed and a hesitant BoJ. The direction of travel looks clearly towards the 158/160 area – an area where the BoJ has sold close to $100bn this year in previously successful attempts to stabilize the yen.”

“We presume the incoming US Treasury will not mind this intervention given that Japan will be trying to support its currency. And back in 2019, the US Treasury labelled China a currency manipulator for allowing its currency to weaken.”

FOMC decision to cut the target range of the Fed funds rate by 25bps to 4.25-4.50% was not unanimous, with one member voting for a hold, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Inflation expected to move to the 2% target in 2026/2027

“Meanwhile, the o/n reverse repo rate has been cut by 30bps as we expected, to align with the lower bound of the Fed funds rate target range. The Fed revised upward 2025 PCE inflation forecast to 2.5% from 2.1% prior, and 2025 core PCE inflation forecast to 2.5% from 2.2% prior.”

“Inflation is now expected to move nearer or to the 2% target in 2026/2027, which explains the more paced out rate cut cycle the updated dot-plot reflect. On the dot-plot, the median dots reflect 50bps of cuts in 2025, followed by 50bps of cuts in 2026, and a 25bp cut in 2027. Powell commented that the policy stance ‘is now significantly less restrictive. We therefore can be more cautious as we consider further adjustments to our policy rate’.”

“A pause in rate cuts may come as early as January, but between now and January FOMC meeting there are still data to be digested. Granted, these dots move, and past December median dots were not particularly accurate in anticipating the actual outcome.”

The Federal Reserve cut rates by 25bp as expected yesterday, but the broader policy message was more hawkish than expected. The new dot plot projections were heavily revised, now only factoring in 50bp of additional easing in 2025, and one FOMC member voted for a hold, ING’s FX analyst Francesco Pesole notes.

USD to strengthen into the new year

“Fed Chair Jerome Powell said that the Fed will be more cautious moving on and that more progress on inflation is needed for further cuts. Remember, the dovish shift by the Fed a few months ago was triggered by concerns about the jobs market. Yesterday, Powell said the risks to the labour market had diminished, effectively removing any sense of urgency when it comes to easing.”

“The bear flattening in the US curve pushed the dollar to new highs. DXY is trading at 108.0 and we think this hawkish re-tuning of the Fed’s communication will lay the foundation for sustained dollar strengthening into the new year. Markets are fully expecting a hold in January and 11bp are priced in for March.”

“If indeed the dot plot works as a benchmark for rate expectations for the next three months, the bar for a data surprise to seriously threaten the dollar’s big rate advantage is set higher.”

• NZD/USD reached to 27-month low at 0.5607 after the release of Gross Domestic Product data for the third quarter.
• New Zealand's GDP shrank by 1.0% QoQ in Q3, against the expected 0.4% contraction.
• Fed’s Summary of Economic Projections suggested only two rate cuts in 2025, down from four cuts projected in September.

NZD/USD extends its losing streak for the third successive session following weaker-than-expected New Zealand’s Gross Domestic Product (GDP) data for the third quarter. The Kiwi pair declined to 0.5607, the lowest level not seen since October 2022, currently trading around 0.5640 during the European hours on Thursday.

New Zealand's GDP contracted by 1.0% quarter-over-quarter in Q3, slightly improving from the revised 1.1% contraction in Q2 but worse than the anticipated 0.4% decline. On an annual basis, GDP shrank by 1.5% in Q3, a sharper decline compared to the previous 0.5% contraction and well below the expected 0.4% drop. This disappointing data places New Zealand in its deepest recession since the initial COVID-19 slump in 2020.

The New Zealand Dollar faces additional pressure from renewed concerns over China's economy, a critical trading partner. Weak Chinese economic data, including Retail Sales missing expectations in November, has heightened challenges for policymakers. This comes despite President Xi Jinping's recent call to boost household consumption.

The NZD/USD pair dropped over 1.5% in the previous session as the US Dollar (USD) strengthened following the Federal Reserve’s (Fed) hawkish 25 basis point (bps) rate cut at its December meeting, bringing the benchmark lending rate to a range of 4.25%-4.50%, marking a two-year low. The Summary of Economic Projections, or ‘dot-plot,’ suggested only two rate cuts in 2025, down from four cuts projected in September.

Additionally, Fed Chair Jerome Powell made clear on Wednesday that the Fed will be cautious about further cuts as inflation remains stubbornly above the central bank’s 2% target. Traders are highly expected to focus on upcoming US economic data, including weekly Initial Jobless Claims, Existing Home Sales, and the final Q3 Gross Domestic Product (GDP) Annualized reading, scheduled for release on Thursday.

• EUR/USD rebounds to near 1.0400 as the US Dollar takes a breather after the rally induced by the Fed’s hawkish guidance.
• Fed officials see only two interest rate cuts in 2025, fewer than the four projected earlier.
• ECB Wunsch said he is comfortable with market expectations of four 25 bps interest rate cuts in 2025.

EUR/USD jumps to near 1.0400 in Thursday’s European session as US Dollar’s (USD) bulls take a breather after a sharp run-up on Wednesday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, clings to gains near a fresh two-year high above 108.00. The Greenback attracted significant bids after the Federal Reserve (Fed) reduced its key borrowing rates by 25 basis points (bps) to 4.25%-4.50% on Wednesday, as expected, but signaled fewer interest rate cuts for the next year.

In the latest dot plot, the Fed revised its projections for the number of interest rate cuts in 2025 to two from the four forecasted in the September monetary policy meeting. 

In the press conference, Fed Chair Jerome Powell pointed to uncertainty over inflation, easing downside risks to employment and strong growth in the second half of the year as factors that forced officials to turn cautious on interest rate cuts. "I also point out that we're closer to the neutral rate, which is another reason to be cautious about further moves," Powell added.

Meanwhile, the Fed has also revised the forecast for the core Personal Consumption Expenditures Price Index (PCE), the Fed's preferred inflation measure, for 2025 to 2.5%, up from prior estimates of 2.2% in its latest economic projections.

Jerome Powell refrained from commenting on the consequences of the incoming immigration, tariff, and taxation policies by President-elect Donald Trump on the economy. "It is very premature to make any kind of conclusions,” he said. “We don’t know what will be tariffed, from what countries, for how long, in what size," Powell added.

Daily digest market movers: EUR/USD rises as Euro recovers

• EUR/USD advances on Thursday as the Euro (EUR) performs strongly against its major peers even though European Central Bank (ECB) officials have guided a continuation of the policy-easing spell in 2025. The ECB has already reduced its Deposit Facility rate by 100 basis points (bps) to 3% and is expected to cut by a similar margin next year.
• ECB policymaker and Governor of National Bank of Belgium Pierre Wunsch has also backed four more interest rate cuts, citing concerns over Eurozone economic growth due to protectionist US policies under Trump’s administration. “Four more rate cuts are a meaningful scenario that I feel relatively comfortable with,” Wunsch said.
• Pierre Wunsch openly discussed a potential Euro parity with the US Dollar in an attempt to compensate for the 10% tariffs by the US. “If the Euro touches parity against the dollar, we wouldn't lose as much in terms of competitiveness,” Wunsch said and added: “A larger Euro depreciation would cushion the impact of tariffs on growth.”
• In Thursday’s session, the shared currency pair will be influenced by the US Initial Jobless Claims data for the week ending December 13 and the second estimate of Q3 Gross Domestic Product (GDP), which will be published at 13:30 GMT.
• On Friday, investors will pay close attention to the US PCE inflation data for November. The core PCE Price Index data is estimated to have accelerated to 2.9% from 2.8% in October. On month, the inflation measure is expected to have grown by 0.2%, slower than the prior release of 0.3%.

Technical Analysis: EUR/USD recovers from 1.0340

EUR/USD bounces back after refreshing a more than three-week low at 1.0340 after the Fed meeting. However, the outlook of the major currency pair remains clearly bearish as all short-to-long-term Exponential Moving Averages (EMAs) are declining. 

The 14-day Relative Strength Index (RSI) slides into the bearish range of 20.00-40.00, suggesting that a fresh downside momentum has been triggered.

Looking down, the pair could decline to near the round-level support of 1.0200 after breaking below the two-year low of 1.0330. Conversely, the 20-day EMA near 1.0500 will be the key barrier for the Euro bulls.

• EUR/GBP gains ground following the improved GfK Consumer Confidence Survey from Germany.
• The Euro may struggle due to rising odds of the ECB reducing rates at every meeting until June 2025.
• The Pound Sterling may appreciate as traders expect the BoE to keep rates unchanged on Thursday.

EUR/GBP halts its three-day losing streak, trading around 0.8250 during the early European hours on Thursday. The EUR/GBP cross remains in positive territory after the release of Germany's GfK Consumer Confidence Survey, which improved to -21.3 for January, up from the previously revised -23.1. The index was expected to come in at -22.5.

The upside of the EUR/GBP cross could be limited as the Euro receives downward pressure from the rising odds that the European Central Bank (ECB) will reduce interest rates at every meeting until June 2025. This sentiment is bolstered by policymakers' concerns over mounting economic risks in the Eurozone.

Speaking at the Annual Economics Conference, ECB President Christine Lagarde signaled the central bank’s readiness to implement additional rate cuts if incoming data confirms that disinflation remains on course. Lagarde also remarked that the earlier emphasis on maintaining "sufficiently restrictive" rates is no longer justified.

Additionally, the EUR/GBP cross may face challenges as the Pound Sterling (GBP) appreciates due to the increased likelihood of the Bank of England (BoE) keeping interest rates unchanged later in the day while remaining focused on addressing elevated domestic inflation.

On Wednesday, data showed that the UK Consumer Price Index (CPI) increased by 2.6% year-over-year in November following October’s 2.3% growth. Core CPI, excluding volatile food and energy items, rose 3.5% YoY in November, against its previous rise of 3.3%. Meanwhile, the annual services inflation steadied at 5.0%, below forecasts of 5.1% but above the BoE's estimate of 4.9%.

Here is what you need to know on Thursday, December 19:

Following the Federal Reserve's (Fed) and the Bank of Japan's (BoJ) monetary policy announcements, the Bank of England (BoE) is next in line to release its interest rate decision on Thursday. In the second half of the day, the US economic calendar will feature weekly Initial Jobless Claims and November Existing Home Sales data. Additionally, the US Bureau of Economic Analysis will publish the final revision to the third quarter Gross Domestic Product (GDP) growth.

The Fed cut its policy rate by 25 basis points (bps) to the range of 4.25%-4.5% after the last meeting of the year. The Fed made small changes to its policy statement from the November meeting, reiterating that they will assess incoming data, evolving outlook and balance of risks when considering the extent and timing of additional rate adjustments. Meanwhile, the revised Summary of Economic Projections (SEP) showed that Fed projections imply 50 bps of rate cuts in 2025. In the post-meeting press conference, Fed Chairman Jerome Powell explained that stronger economic growth and lower unemployment point to a slower rate-cut path, adding that they can be cautious going forward. The US Dollar (USD) Index gathered bullish momentum and reached its highest level since November 2022 above 108.00 in the late American session before going into a consolidation phase early Thursday.

The BoJ decided to keep the short-term rate target unchanged in the range of 0.15%-0.25% after concluding its two-day monetary policy review meeting. The decision came in line with the market expectations. However, hawkish board member Naoki Tamura dissented and proposed raising interest rates to 0.5% on the view inflationary risks were building. In the meantime, BoJ Governor Kazuo Ueda said that they will keep adjusting the degree of easing if the economic and the price outlook is to be realized. After posting strong gains on Thursday, USD/JPY continues to push higher and was last seen trading at its highest level in over a month above 156.00.

The BoE is forecast to leave the policy rate unchanged at 4.75%. Since there will not be a press conference, the statement language and the voting split could drive Pound Sterling's valuation. After losing more than 1% on Wednesday, GBP/USD stages a modest rebound and trades at around 1.2600 early Thursday.

EUR/USD came under heavy bearish pressure in the American session on Wednesday and dropped below 1.0350. The pair corrects higher early Thursday and trades near 1.0400.

Gold declined sharply and lost more than 2% on a daily basis on Thursday as the US Treasury bond yields rallied higher on the hawkish dot plot. After dipping below $2,600, Gold gains its traction early Thursday and trades above $2,600, rising more than 1% on the day.

• The Bank of England is set to keep the interest rate on hold, hinting at 2025 action.
• UK inflation accelerated further in November, albeit within expectations.
• GBP/USD trades within a well-limited 200 pips range ahead of the announcement. 

The Bank of England (BoE) will announce its decision on monetary policy on Thursday after completing the last meeting of 2024. The BoE is widely anticipated to keep the benchmark rate on hold at 4.75%, resulting in a measly 50 basis points (bps) trim throughout 2024. At the time being, financial markets are pricing in another 63 bps in cuts for 2025, down from 80 bps a week before. 

BoE's cautious approach to rate cuts persists

The odds for additional interest rate cuts ahead decreased following the release of the United Kingdom's (UK) monthly employment report, which showed an unexpected uptick in wages. Average Earnings Excluding Bonus, a key measure of wage growth, rose by 5.2% in the three months to October, surpassing estimates of 5% and higher than the previous 4.9%. 

The figures struck a chord, although inflation figures released afterwards were in line with expectations.

On Wednesday, the UK reported that the November Consumer Price Index (CPI) rose 2.6% on a yearly basis in November, higher than the 2.3% posted in October, yet matching the market’s expectations. Core CPI annual inflation, in the meantime, rose to 3.5% in November, above the previous 3.3%, while below the market consensus of 3.6%.

It is worth noting that yearly inflation posted an encouraging 1.7% in September, with the subsequent increase reinforcing BoE’s cautious stance amid concerns about persistent inflationary pressures. 

Ahead of the event, Governor Andrew Bailey said in an interview that the BoE could be on track for four interest rate cuts over the next year if inflation continues its downward path. Yet before such comment, he also said the BoE would need to take a “gradual” approach to lowering rates. The latest employment and inflation-related figures reinforce the idea of a cautious approach and, hence, the expected on-hold decision.

Beyond the decision itself, market players will also pay attention to how voting splits. The nine Monetary Policy Committee (MPC) members are responsible for making decisions about the bank rate. They can vote to cut, hike or keep interest rates on hold. The more votes in one direction or the other, the more the market will see it as a hint of future action. For this December meeting, market participants anticipate eight MPC members will vote to keep rates on hold and one member to vote in favor of a cut. 

Finally, the BoE will release alongside the Monetary Policy Report a document explaining what backed their decision and, more relevantly, officials' economic outlook, the latter seen as a hint towards future decisions.

Federal Reserve’s hawkish cut

The Federal Reserve (Fed) deserves a separate chapter ahead of the BoE’s decision, as the United States (US) central bank announced its decision on monetary policy late on Wednesday, boosting demand for the US Dollar (USD) across the FX board.

The Fed cut the benchmark interest rate by 25 basis points (bps)   as widely anticipated. Yet, the Summary of Economic Projections (SEP) or dot plot triggered a risk-averse reaction, as policymakers confirmed an upcoming pause in rate cuts through 2025. Updated projections and Chairman Jerome Powell’s press conference showed officials opted for a more cautious approach amid sticky inflation and the return of former President Donald Trump to the White House.

The announcement pushed the USD sharply up while stock markets collapsed. The GBP/USD pair posted a fresh December low of 1.2560, bouncing just modestly afterwards.

How will the BoE interest rate decision impact GBP/USD?

As said, the BoE is expected to keep the benchmark interest rate on hold. The decision is largely priced in, which means the British Pound (GBP) will hardly react to the announcement unless there is a huge surprise. The news market mover will be the MPC voting spread. The more members vote for a cut, the more dovish will be seen the decision and could result in a GBP slide. The opposite scenario is also valid. Finally, speculative interest will assess the Monetary Policy Report and Governor Bailey’s words to determine how hawkish or dovish the BoE is today. 

Valeria Bednarik, Chief Analyst at FXStreet, notes: “In the case of a dovish outcome, GBP/USD could turn bearish. Still, if the announcement aligns with recent Bailey’s comments on four rate cuts coming in 2025, the decline could be shallow, given that it would lack the surprise factor that usually results in wider price reactions. On the contrary, a hawkish surprise or hints of fewer rate cuts next year could result in GBP/USD turning bullish.”

Bednarik adds: “The GBP/USD pair trades at levels last seen in November, in the Fed’s aftermath, and looks poised to extend its decline, particularly if the fresh monthly low at 1.2560 gives up. The next relevant support comes at the 1.2486 November low, while a break below the latter exposes the 1.2420 price zone. A critical resistance level is the former December low at 1.2698, en route to the top of the recent range at 1.2810.”

Bank of Japan (BoJ) Governor Kazuo Ueda speaks at the post-policy meeting press conference on Friday, explaining the reasons behind the decision not to change the interest rate.

Additional quotes

developing story ...

Market reaction

USD/JPY is off the monthly high of 155.48 following these comments. The pair was last seen trading 0.16% higher on the day at 155.05.

FX option expiries for Dec 19 NY cut at 10:00 Eastern Time via DTCC can be found below.

EUR/USD: EUR amounts

• 1.0365 1.4b
• 1.0390 1.4b
• 1.0400 1.8b
• 1.0450 1b
• 1.0500 1.1b
• 1.0550 2.2b
• 1.0555 1.1b
• 1.0580 1.1b
• 1.0600 2.9b

GBP/USD: GBP amounts     

• 1.2500 520m
• 1.2580 439m

USD/JPY: USD amounts                     

• 153.65 845m
• 155.00 1.7b

AUD/USD: AUD amounts

• 0.6350 740m
• 0.6360 590m

USD/CAD: USD amounts       

• 1.4280 459m

• Silver price reached a three-month low at $29.26 on Thursday.
• Non-yielding Silver depreciates as the Fed’s "dot plot," anticipates only two rate cuts in 2025.
• The BoJ kept the short-term rate target within the range of 0.15%-0.25%.

Silver price (XAG/USD) extends its losing streak for the sixth consecutive session, trading around $29.50 per troy ounce during the Asian hours on Thursday. The price of the grey metal depreciated more than 3% after the release of the Federal Reserve (Fed) interest rate decision on Wednesday.

The Federal Reserve (Fed) delivered a hawkish cut of 25 basis points (bps) at its December meeting, bringing its benchmark lending rate to a range of 4.25%-4.50%, a two-year low. Additionally, during the Press Conference, Fed Chair Jerome Powell made clear that the Fed will be cautious about further cuts as inflation remains stubbornly above the central bank’s 2% target.

The Summary of Economic Projections, often referred to as the "dot plot," now anticipates only two rate cuts in 2025, a decrease from the four projected in September. This adjustment may be due to robust GDP growth and persistent inflation in the United States (US). Prolonged higher interest rates tend to negatively impact the demand for non-yielding assets like Silver.

Traders will likely observe the US weekly Initial Jobless Claims, Existing Home Sales, and final reading of Gross Domestic Product Annualized for the third quarter (Q3) due on Thursday. These data points could further shape the Fed’s monetary policy expectations.

Moreover, the Bank of Japan maintained its policy rate for the third consecutive meeting, keeping the short-term rate target within the range of 0.15%-0.25% after its two-day monetary policy review, in line with market expectations. Traders expect the Bank of England (BoE) to keep interest rates unchanged later in the day.

Additionally, the industrial outlook for Silver appears constrained due to overcapacity in China’s solar panel industry, prompting photovoltaic companies to join a government self-discipline program to regulate supply.

Gold prices rose in India on Thursday, according to data compiled by FXStreet.

The price for Gold stood at 7,131.22 Indian Rupees (INR) per gram, up compared with the INR 7,088.97 it cost on Wednesday.

The price for Gold increased to INR 83,174.24 per tola from INR 82,684.38 per tola a day earlier.

FXStreet calculates Gold prices in India by adapting international prices (USD/INR) to the local currency and measurement units. Prices are updated daily based on the market rates taken at the time of publication. Prices are just for reference and local rates could diverge slightly.

(An automation tool was used in creating this post.)

• USD/CAD witnessed some profit-taking after touching a fresh multi-year high on Thursday.
• The fundamental backdrop warrants some caution before positioning for deeper losses.
• Traders now look to the final US Q3 GDP and Jobless Claims data for short-term impetus.

The USD/CAD pair retreats slightly after touching its highest level since March 2020, around the 1.4465 region during the Asian session on Thursday and for now, seems to have snapped a five-day winning streak. Spot prices currently trade near the 1.4430 area, or the daily low, though any meaningful corrective decline seems elusive. 

The US Dollar (USD) enters a bullish consolidation phase following the previous day's post-FOMC spike to a two-year high and prompts some profit-taking around the USD/CAD pair amid overbought conditions on the daily chart. Adding to this, an uptick in Crude Oil prices underpins the commodity-linked Loonie and further exerts pressure on the pair, though a combination of factors should help limit any further losses. 

In a shocking political development, Canada’s Deputy Prime Minister and Finance Minister Chrystia Freeland resigned earlier this week, citing disagreements with Prime Minister Justin Trudeau over economic strategy and US tariff threats. This comes on top of the Bank of Canada's (BoC) aggressive policy easing and dovish outlook. This should act as a headwind for the Canadian Dollar (CAD) and support the USD/CAD pair. 

Meanwhile, the Federal Reserve (Fed) offered a more hawkish view on the outlook for 2025 and signaled that it would slow the pace of rate cuts. This continues to push the US Treasury bond yields higher, which, along with the risk-off impulse, supports prospects for a further near-term appreciating move for the safe-haven buck. Hence, a strong follow-through selling is needed to confirm that the USD/CAD pair has topped out. 

Moving ahead, traders now look forward to the US economic docket – featuring the release of the final Q3 GDP print and the usual Weekly Initial Jobless Claims – for short-term impetus later during the North American session. The market attention will then shift to the US Personal Consumption Expenditure (PCE) Price Index, or the Fed's preferred inflation gauge on Friday.

• AUD/JPY attracts some buyers to near 96.70 in Thursday’s Asian session, up 0.40% on the day. 
• BoJ kept its policy unchanged at its December meeting on Thursday. 
• The RBA dovish expectations might cap the upside for the cross. 

The AUD/JPY cross drifts higher to around 96.70, snapping the two-day losing streak during the Asian trading hours on Thursday. The Japanese Yen (JPY) weakens after the Bank of Japan (BoJ) policy announcements. 

As widely expected, the BoJ kept the short-term policy rate target steady in the range of 0.15%-0.25% following a two-day policy meeting that ended Thursday. According to the summary of the BoJ policy statement, Japan's economy is recovering modestly, but with certain vulnerabilities. Inflation expectations are increasing modestly. However, uncertainty over Japan's economic and pricing future remains strong.

The Japanese central bank will examine whether the current wage hike momentum in Japan continues into next year, as some smaller firms have struggled to pass on higher costs to consumers. Later on Thursday, investors will closely monitor the BoJ Governor Kazuo Ueda’s speech for fresh impetus. 

On the other hand, the rising bets that the Reserve Bank of Australia (RBA) will cut interest rates sooner than expected might weigh on the Aussie. Gareth Aird, head of Australian economics at CBA, predicted a February RBA rate cut as the central bank had made an “unambiguous shift in the dovish direction.”

• GBP/JPY rose after the BoJ decided to keep the short-term rate target unchanged within the range of 0.15%-0.25%.
• BoJ Summary suggests that uncertainty surrounding Japan's economic and price outlook remains significant.
• The Pound Sterling appreciates as traders expect the BoE to maintain its current interest rates at 4.75% on Thursday.

GBP/JPY has halted its two-day losing streak, trading around 195.50 during the Asian session on Thursday. The GBP/JPY cross is appreciating as the Japanese Yen (JPY) struggles after the release of the Bank of Japan's (BoJ) decision to keep interest rates unchanged.

The Bank of Japan maintained its policy rate for the third consecutive meeting, keeping the short-term rate target within the range of 0.15%-0.25% after its two-day monetary policy review, in line with market expectations.

The Summary of the BoJ Policy Statement stated that Inflation is expected to reach a level broadly consistent with the BoJ's price target in the latter half of its three-year projection period, extending through fiscal 2026. However, uncertainty surrounding Japan's economic and price outlook remains significant. The impact of foreign exchange (FX) volatility on inflation could be more pronounced than in the past, owing to changes in corporate wage and price-setting behaviors.

The upside of the GBP/JPY cross is bolstered by the improved Pound Sterling (GBP), which could be attributed to the increased likelihood of the Bank of England (BoE) keeping interest rates unchanged later in the day while remaining focused on addressing elevated domestic inflation.

Data showed on Wednesday that the UK Consumer Price Index (CPI) rose by 2.6% year-over-year in November following 2.3% growth in October. Core CPI, excluding volatile food and energy items, increased 3.5% YoY in November, compared to a previous rise of 3.3%. Meanwhile, the annual services inflation steadied at 5%, below forecasts of 5.1% but above the BoE's estimate of 4.9%.

• Gold price benefits from the global flight to safety amid a sea of red across the equity markets.
• The Fed’s hawkish stance remains supportive of elevated US bond yields and should cap gains.
• Traders now look to the US Q3 GDP for some impetus ahead of the US PCE Price Index on Friday. 

Gold price (XAU/USD) stages a goodish recovery from a one-month trough, around the $2,584-$2,583 region touched during the Asian session on Thursday and for now, seems to have snapped a two-day losing streak. Against the backdrop of geopolitical risks and trade war fears, the Federal Reserve's (Fed) hawkish shift on Wednesday takes its toll on the global risk sentiment. This is evident from a sea of red across the equity markets and turns out to be a key factor driving some haven flows towards the precious metal. 

Meanwhile, the Fed signalled a more cautious path of easing next year, which keeps the US Treasury bond yields elevated near a multi-month top and assists the US Dollar (USD) to preserve its overnight strong gains to a two-year high. This, in turn, might keep a lid on any meaningful upside for the non-yielding Gold price and warrants some caution for bulls. Investors now look to the US economic docket – featuring the final Q3 GDP print and the usual Weekly Initial Jobless Claims – for short-term trading opportunities. 

Gold price attracts some haven flows amid the risk-off impulse; not out of the woods yet

• The Federal Reserve, as was anticipated, lowered its benchmark policy rate for the third time since September and signaled that it would slow down the pace of rate cuts, triggering a sell-off in the US equity markets. 
• The spillover effect drags Asian stocks sharply lower on Thursday and benefits traditional safe-haven assets, prompting some short-covering around the Gold price and assisting it to rebound from a one-month low. 
• The so-called dot plot indicated that officials see the fed funds rate falling to 3.9% in 2025, suggesting two more 25 basis points interest rate reductions as compared to the previous forecast of four cuts in September. 
• The yield on the benchmark 10-year US government bond climbs to the highest level since May and assists the US Dollar in preserving the overnight gains to a two-year top, capping the non-yielding yellow metal. 
• In his post-meeting press conference, Fed Chair Jerome Powell said that inflation has eased significantly in the past two years, though it remains somewhat elevated relative to the central bank’s 2% longer-run target. 
• Traders now look forward to Thursday's US economic docket – featuring the release of the final Q3 GDP print and Weekly Initial Jobless Claims – for short-term impetus later during the North American session.
• The market attention, meanwhile, shifts to the US Personal Consumption Expenditures (PCE) Price Index, or the Fed's preferred inflation gauge on Friday, which will drive the USD and the XAU/USD in the near term.

Gold price seems vulnerable after the overnight sustained break and close below the 100-day SMA

From a technical perspective, the overnight close below the 100-day Simple Moving Average (SMA), for the first time since October 2023, and the $2,600 mark was seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and suggest that the path of least resistance for the Gold price remains to the downside. Meanwhile, Thursday's attempted recovery stalls near the $2,618 region, or the 23.6% Fibonacci retracement level of the latest leg down from over a one-month high touched last week. The said area should now act as a pivotal point, above which a fresh bout of a short-covering could lift the XAU/USD towards the $2,635 area, or the 38.2% Fibo., en route to 50% retracement level, around the $2,655-2,656 supply zone. 

On the flip side, the Asian session low, around the $2,584-$2,583 region, now seems to protect the immediate downside. The next relevant support is pegged near the $2,560 area, below which the Gold price could aim to challenge the November swing low, around the $2,537-$2,535 zone. Some follow-through selling, leading to a subsequent fall below the $2,500 psychological mark, might expose the very important 200-day SMA support near the $2,470 region.

• EUR/JPY appreciates as the BoJ kept the short-term rate target unchanged within the range of 0.15%-0.25%.
• BoJ Summary suggests that uncertainty surrounding Japan's economic and price outlook remains significant.
• The ECB is expected to reduce interest rates at every meeting until June 2025, driven by policymakers' concerns.

EUR/JPY breaks its two days of losses, trading around 161.20 during the Asian hours on Thursday. The EUR/JPY cross appreciates as the Japanese Yen (JPY) faces challenges following the Bank of Japan’s (BoJ) monetary policy decision of keeping interest rates unchanged.

The Bank of Japan maintained its policy rate for the third consecutive meeting, keeping the short-term rate target unchanged within the range of 0.15%-0.25% following its two-day monetary policy review. The decision aligned with market expectations.

According to the Summary of the BoJ Policy Statement, Inflation is expected to reach a level broadly consistent with the BoJ's price target in the latter half of its three-year projection period, extending through fiscal 2026. However, uncertainty surrounding Japan's economic and price outlook remains significant. The impact of foreign exchange (FX) volatility on inflation could be more pronounced than in the past, owing to changes in corporate wage and price-setting behaviors.

The upside of the EUR/JPY cross could be restrained as the Euro faces challenges due to rising odds of the European Central Bank (ECB) reducing interest rates at every meeting until June 2025, driven by policymakers' concerns over mounting economic risks in the Eurozone.

Speaking at the Annual Economics Conference, ECB President Christine Lagarde signaled the central bank’s readiness to implement additional rate cuts if incoming data confirms that disinflation remains on course. Lagarde also remarked that the earlier emphasis on maintaining "sufficiently restrictive" rates is no longer justified.

• WTI trades with mild gains near $69.50 in Thursday’s Asian session. 
• A cautionary tone by the Fed and Chinese sluggish demand concerns undermine the WTI price. 
• US crude oil stocks fell less than expected last week, according to the EIA. 

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $69.50 on Thursday. The WTI price posts modest gains as US crude inventories fell and the US Federal Reserve (Fed) lowered its key interest rate by a quarter percentage point on Wednesday. However, the signal that the US central bank would slow the pace of reductions might cap the upside for the black gold. 

The Fed made its third consecutive cut of 2024, reducing the federal funds rate by 25 basis points (bps) at its December meeting on Wednesday. The US central bank signalled it would slow the pace of the easing cycle as sticky inflation and US President-elect Donald Trump's proposed policies could prove inflationary. The Fed officials indicated that it probably would only lower twice more in 2025. This, in turn, lifts the Greenback and exerts some selling pressure on the USD-denominated commodity price as it makes oil more expensive in other countries, which can reduce demand.

Additionally, the concerns about the weakness in consumer spending in China, the world's largest oil importer, could weigh on the WTI price. “Bearish momentum spawned by the China data destroyed any hopes speculators had of breaking out of the two-month range to the upside,” noted Robert Yawger, director of the energy futures division at Mizuho Securities USA. 

A decline in US crude inventories last week might provide some support to the WTI. The Energy Information Administration (EIA) weekly report showed crude oil stockpiles in the United States for the week ending December 13 declined by 934,000 barrels, compared to a fall of 1.7 million barrels in the previous week. The market consensus estimated that stocks would decrease by 1.425 million barrels. 

• GBP/USD receives support as the Bank of England is widely expected to keep interest rates unchanged on Thursday.
• The Pound Sterling depreciated more than 1% against the US Dollar following the Fed’s decision on Wednesday.
• The ‘dot plot,’ indicated only two rate cuts by the Fed in 2025, a reduction from four projected in September.

GBP/USD gains ground after declining more than 1% following the Federal Reserve’s (Fed) hawkish cut on Wednesday, trading around 1.2590 during the Asian hours on Thursday. The Pound Sterling (GBP) gains upward support as the Bank of England (BoE) is anticipated to keep interest rates unchanged later in the day while remaining focused on addressing elevated domestic inflation.

On Wednesday, data showed that the UK Consumer Price Index (CPI) rose by 2.6% year-over-year in November following 2.3% growth in October. Core CPI, excluding volatile food and energy items, increased 3.5% YoY in November, compared to a previous rise of 3.3%. Meanwhile, the annual services inflation steadied at 5%, below forecasts of 5.1% but above the BoE's estimate of 4.9%.

The GBP/USD pair declined as the US Dollar (USD) appreciated as the Federal Reserve (Fed) delivered a hawkish cut of 25 basis points (bps) at its December meeting on Wednesday, bringing its benchmark lending rate to a range of 4.25%-4.50%, a two-year low. Traders will likely observe the US weekly Initial Jobless Claims, Existing Home Sales, and final reading of Gross Domestic Product Annualized for the third quarter (Q3) due on Thursday.

The Summary of Economic Projections, or ‘dot-plot,’ suggested only two rate cuts in 2025, down from the four they projected in September. Additionally, during the Press Conference, Fed Chair Jerome Powell made clear that the Fed will be cautious about further cuts as inflation remains stubbornly above the central bank’s 2% target.

• The Indian Rupee holds steady in Thursday’s Asian session. 
• Persistent demand for USD and a cautious outlook from Fed officials might add further pressure on the INR. 
• The US weekly Initial Jobless Claims, Existing Home Sales and final reading of Q3 GDP data will be released later on Thursday.

The Indian Rupee (INR) flat lines on Thursday. The renewed US dollar (USD) demand from importers, foreign banks, foreign fund outflows and a muted trend in domestic equities further undermine the local currency. Furthermore, the US Federal Reserve (Fed) lowered its key interest rate by a quarter percentage point at its December meeting on Wednesday and also projected a slower pace of cuts in 2025. This, in turn, boosts the Greenback against the INR. 

Nonetheless, the downside of the INR might be limited as the Reserve Bank of India (RBI) is likely to intervene in the market to prevent excess volatility. Traders will keep an eye on the US weekly Initial Jobless Claims, Existing Home Sales and final reading of Gross Domestic Product Annualized for the third quarter (Q3), which are due later on Thursday. 

Indian Rupee consolidates after the Fed rate decision

• A rise in gold imports that widened India's trade deficit to a record in November and pushed the INR to a record low was due to an error in calculation, Bloomberg News reported on Wednesday, citing people with knowledge of the matter.
• “There is pressure on the rupee due to the demand for dollars from foreign clients. However, the rupee is performing better than other currencies. The depreciation is gradual. Now it is expected to trade in a narrow range and 85 per dollar level will be protected,” said the treasury head at a state-owned bank.
• On Wednesday, the Fed reduced the Federal Funds Rate by 25 basis points (bps) to a target range of 4.25%-4.50%, back to the level where it was in December 2022.
• The Fed expects to continue cutting rates next year, although it is now penciling in two rate cuts, down from the four it had forecast in September, according to the Summary of Economic Projections, or “dot plot”. 
• The dot plot saw the committee lower its expected unemployment rate this year to 4.2% and raise its projection for 2024 Gross Domestic Product growth to 2.5%. 

USD/INR’s broader trend remains constructive

The Indian Rupee trades on a flat note on the day. The USD/INR pair maintains a strong uptrend on the daily chart, with the price holding above the key 100-day Exponential Moving Average (EMA). The path of least resistance is to the upside as the 14-day Relative Strength Index (RSI) is above the midline near 65.85, suggesting bullish pressure is present. 

The ascending trend channel and the psychological level of 85.00 appear to be a tough nut to crack for bulls. The breakout above this level could see a rally to the next upside target at 85.50.

On the other hand, the initial support level emerges at 84.82, the lower boundary of the trend channel. A breach of the mentioned level could expose 84.22, the low of November 25. Bearish candlesticks could see a drop to 84.16, the 100-day EMA.

• The Australian Dollar recovers daily losses after the release of Consumer Inflation Expectations on Thursday.
• Australia’s Consumer Inflation Expectations increased to 4.2% in December from the previous 3.8% rise.
• US Dollar surged as the Fed delivered a hawkish cut of 25 basis points at its December meeting.

The Australian Dollar (AUD) pares daily losses following the release of Consumer Inflation Expectations on Thursday. However, the AUD/USD pair declined as the US Dollar (USD) appreciated as the Federal Reserve (Fed) delivered a hawkish cut of 25 basis points (bps) at its December meeting on Wednesday, bringing its benchmark lending rate to a range of 4.25%-4.50%, a two-year low.

Australia’s Consumer Inflation Expectations rose to 4.2% in December from 3.8% in the previous month, marking the highest level since September. However, the AUD struggles due to the increased likelihood that the Reserve Bank of Australia (RBA) will cut interest rates sooner and more significantly than initially expected. However, future decisions will be data-driven, with evolving risk assessments guiding the RBA's approach.

The US Dollar appreciated as the Summary of Economic Projections, or ‘dot-plot,’ showed only two rate cuts in 2025, down from the four they projected in September. Additionally, during the Press Conference, Fed Chair Jerome Powell made clear that the Fed will be cautious about further cuts as inflation remains stubbornly above the central bank’s 2% target.

Australian Dollar receives downward pressure following Fed’s hawkish rate cut

• National Australia Bank (NAB) maintains its forecast for the first Reserve Bank of Australia rate cut at the May 2025 meeting, though they acknowledge February as a possibility. NAB's report indicates that the Unemployment Rate is expected to peak at 4.3% before easing to 4.2% by 2026 as the economy stabilizes. The Q4 trimmed mean inflation is projected at 0.6% quarter-on-quarter, with a gradual easing expected, reaching 2.7% by late 2025.
• Australia's Westpac Consumer Confidence fell 2% to 92.8 points in December, reversing two months of positive momentum.
• US Census Bureau reported on Tuesday that US Retail Sales rose 0.7% MoM in November, compared to the 0.5% prior increase. Meanwhile, the Retail Sales Control Group increased 0.4% from the previous decline of 0.1%.
• Reuters cited two sources on Tuesday that China is set to target economic growth of around 5% in 2025. This decision follows a meeting among top Chinese officials at the Central Economic Work Conference last week. The growth target remains the same as this year, which China is expected to achieve.
• China's foreign exchange regulator, the State Administration of Foreign Exchange (SAFE), reported a net outflow of $45.7 billion from China's capital markets in November. Cross-border portfolio investment receipts totaled $188.9 billion, while payments reached $234.6 billion, resulting in the largest monthly deficit on record for this category.
• In the United States, the preliminary S&P Global Composite Purchasing Managers Index (PMI) rose to 56.6 in December, from 54.9 prior. Meanwhile, the Services PMI improved to 58.5 from 56.1. The Manufacturing PMI declined to 48.3 in December, from the previous 49.7 reading.
• Chinese authorities, led by President Xi Jinping, have pledged to raise the fiscal deficit target next year, shifting policy focus to consumption to boost the economy amid looming 10% US tariffs threatening exports. The lack of concrete details on fiscal support has put downward pressure on the AUD, given China's status as Australia's largest trading partner.

Australian Dollar holds position above 0.6200, descending channel’s lower boundary

The AUD/USD pair trades near 0.6220 on Thursday. Analysis of a daily chart suggests a prevailing bearish bias as the pair moves downwards within a descending channel pattern. However, the 14-day Relative Strength Index (RSI) has broken below the 30 level, indicating an oversold situation and a potential for an upward correction soon.

Regarding support, the AUD/USD pair could navigate the descending channel’s lower boundary around the 0.6140 level.

On the upside, the AUD/USD pair may find its initial resistance around the nine-day Exponential Moving Average (EMA) at 0.6326, followed by the 14-day EMA at 0.6362, aligned with the descending channel’s upper boundary at 0.6400 level. A decisive breakout above this channel could drive the pair toward the eight-week high at 0.6687.

AUD/USD: Daily Chart

• The Japanese Yen consolidates its recent losses against the USD to a one-month trough. 
• Traders opt to move to the sidelines and await the BoJ decision before placing fresh bets.
• The USD preserves the post-FOMC gains and acts as a tailwind for the USD/JPY pair.

The Japanese Yen (JPY) will be in the spotlight this Thursday as the Bank of Japan (BoJ) is scheduled to announce its final policy decision of the year. The BoJ is widely expected to keep interest rates steady, though it might signal a potential rate hike in January. That said, the risk of a surprise rate hike later today holds back the JPY bears from placing fresh bets. Apart from this, the risk-off impulse – as depicted by a sea of red across the global equity markets – offers some support to the safe-haven JPY. This caps the overnight USD/JPY rally to a nearly one-month peak. 

Meanwhile, the Federal Reserve's (Fed) hawkish interest rate cut on Wednesday pushed the long-dated US Treasury yields to a multi-month top and should keep a lid on the lower-yielding JPY. Furthermore, the post-FOMC US Dollar (USD) rise to its highest level in two years should contribute to limiting the downside for the USD/JPY pair. Nevertheless, the crucial BoJ policy decision is likely to infuse volatility in the markets and any hawkish signal might trigger another JPY carry trade unwinding, which, in turn, should weigh heavily on the currency pair. 

Japanese Yen bears retain control ahead of the crucial BoJ policy update

• The Federal Reserve lowered its benchmark policy rate by 25 basis points on Wednesday to the 4.25%-4.50% range, marking the third rate cut since September.
• Meanwhile, the so-called dot plot indicated that policymakers now see just two quarter-point rate cuts next year compared to four rate cuts forecasted in September. 
• In his post-meeting press conference, Fed Chair Jerome Powell said that inflation remains somewhat elevated relative to the central bank’s 2% longer-run goal. 
• The yield on the benchmark 10-year US government bond recorded its highest closing since May 31 and the US Dollar shot to a two-year high after the Fed's hawkish cut.
• Elevated US bond yields, along with expectations that the Bank of Japan will keep interest rates unchanged, continue to weigh on the Japanese Yen on Thursday. 
• The JPY bears, however, refrain from placing fresh bets and opt to move to the sidelines ahead of the latest BoJ policy update for cues about a January rate hike. 
• Later during the early North American session, the US macro data – the final Q3 GDP print and Weekly Initial Jobless Claims – might provide some impetus. 
• The market attention will then shift to the US inflation data – the US Personal Consumption Expenditures (PCE) Price Index, due for release on Friday. 

USD/JPY seems poised to appreciate further; move beyond 155.00 is awaited

Against the backdrop of the recent strong move up from 100-day Simple Moving Average (SMA) support, or the monthly low, a subsequent strength beyond the 155.00 psychological mark could be seen as a key trigger for bullish traders. Furthermore, oscillators on the daily chart have been gaining positive traction and are still away from being in the overbought zone. Hence, a sustained strength beyond the said handle should allow the USD/JPY pair to surpass the 155.40-155.45 intermediate hurdle and aim to reclaim the 156.00 mark. The momentum could extend further towards testing the multi-month top, around the 156.75 area touched in November.

On the flip side, the 154.25 area now seems to act as an immediate support ahead of the 154.00 mark. Some follow-through selling might expose the weekly low, around the 153.15 region, which if broken could drag the USD/JPY pair to the next relevant support near the 152.55-152.50 zone. Any further decline could be seen as a buying opportunity and remain limited near the very important 20-day SMA pivotal support near the 152.20 region. Failure to defend the said support levels might shift the near-term bias in favor of bearish traders and make spot prices vulnerable to weaken further towards the 151.00 round-figure mark.

The People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead on Thursday at 7.1911, as compared to the previous day's fix of 7.1880 and 7.3165 Reuters estimates.

• EUR/USD edges lower to 1.0370 in Thursday’s Asian session. 
• The Fed cut its federal funds rate by 25 bps, lowering the rate to a range of 4.25% to 4.50%.
• The dovish remarks from the ECB weigh on the Euro.

The EUR/USD pair weakens to near 1.0370 during the Asian trading hours on Thursday. The hawkish rate cut by the US Federal Reserve (Fed) lifts the US Dollar (USD) and drags the major pair lower. Later on Thursday, the US weekly Initial Jobless Claims, Existing Home Sales, and final reading of Gross Domestic Product Annualized for the third quarter (Q3) will be released. 

As widely expected, the Fed delivered a hawkish cut of 25 basis points (bps) at its December meeting on Wednesday, bringing its benchmark lending rate to a range of 4.25%-4.50%, a two-year low. The Summary of Economic Projections, or ‘dot-plot,’ showed only two rate cuts in 2025, down from the four they projected in September. 

During the Press Conference, Fed Chair Jerome Powell made clear that the Fed is going to be cautious about further cuts as inflation remains stubbornly above the central bank’s 2% target. The expectation of a slower pace of Fed rate reductions next year provides some support to the Greenback against the Euro (EUR). 

Across the pond, investors expect the European Central Bank (ECB) to cut the interest rates at every meeting until June 2025 as policymakers are concerned about growing economic risks in the Eurozone. The expectation of aggressive rate reductions by the ECB might continue to undermine the shared currency.