Dollar Under Pressure as Euro, Pound and Aussie Climb, Gold Near Record Highs

Market volatility remains relatively elevated as many investors have left for the Christmas holidays and most key macroeconomic data have already been released. On Tuesday, Germany published import price index figures: in November, annual growth slowed to –1.9% from –1.4% previously, while the monthly reading accelerated from 0.2% to 0.5%, significantly above the 0.1% consensus forecast. Overall, inflation risks in the region remain under control, and against this backdrop the European Central Bank (ECB) has signaled that the current monetary easing cycle has likely come to an end.

Policymakers are now focusing on labor market conditions and the broader slowdown in economic growth, particularly in the bloc’s largest economies. Limited GDP growth is being achieved mainly due to a sharp increase in defense spending, while domestic consumption and industrial output continue to contract. Spain’s GDP growth in the third quarter eased slightly, with annual growth slowing from 2.9% to 2.8% and quarterly growth from 0.7% to 0.6%.

Meanwhile, the US economy showed a sharp acceleration in annual terms, with GDP growth rising from 3.8% to 4.3%, well above expectations of 3.3%. This could support the Federal Reserve’s case for keeping monetary policy unchanged. However, investors remain more concerned about labor market dynamics and the upcoming change of the Fed chair, who could adopt a more dovish stance. Today at 15:30 (GMT+2), attention will turn to US weekly jobless claims data for the week ending December 19. Initial claims are expected to edge down from 224.0K to 223.0K, while continuing claims are projected to rise from 1.897M.

GBP/USD

The British pound continues to gain ground against the US dollar, extending the strong bullish impulse of recent sessions. The pair is testing the 1.3520 level for an upside breakout, marking fresh local highs since late September. The dollar remains under pressure due to mixed US macroeconomic data and growing expectations that the Federal Reserve could accelerate the pace of monetary easing next year. Earlier in December, as expected, the Fed cut interest rates by 25 basis points to 3.75% and left its forward guidance largely unchanged.

At the same time, inflation expectations were revised lower, while GDP projections were adjusted upward. Overall, the Fed maintains a relatively optimistic outlook but continues to closely monitor labor market developments.

The Bank of England also reduced borrowing costs by 25 basis points in December. The decision passed narrowly, with five members of the Monetary Policy Committee voting in favor of the cut and four opting to keep rates unchanged.

Despite easing, inflation in the UK remains well above the regulator’s target levels. In November, annual CPI growth slowed to 3.2%, and policymakers expect the disinflation trend to accelerate in the coming months. This expectation is partly linked to the recently approved state budget, which предусматривает higher taxes alongside reduced social spending. Recent macroeconomic data were moderately optimistic: quarterly GDP growth held steady at 0.1%, annual growth at 1.3%, while business investment surged from 0.7% to 2.7%. Overall investment also improved, rising from –0.3% to 1.5% on a quarterly basis.

AUD/USD

The Australian dollar is strengthening against the US dollar, testing the 0.6710 level for an upside breakout and reaching fresh record highs last seen on October 21, 2024. The US dollar is weakening amid a notable rise in market volatility. Many investors are heading into the Christmas holiday period, while others continue to assess US macroeconomic data released on Tuesday.

US GDP growth for the third quarter rose from 3.8% to 4.3% year-on-year, defying expectations of a slowdown to 3.3%. The strongest contribution came from increased consumer spending on healthcare, as well as growth in information technology companies, particularly those linked to artificial intelligence (AI). Defense-related industries also expanded, supported by arms sales programs to NATO allies.

At the same time, domestic business activity in Australia remains subdued, with business investment declining amid shifting global market conditions and the introduction of new trade restrictions. Support for the Australian dollar comes from expectations that the Reserve Bank of Australia (RBA) could tighten monetary policy in 2026. This possibility was not ruled out by RBA Governor Michele Bullock, as reflected in the minutes of the December policy meeting. In early December, the RBA kept its benchmark rate unchanged at 3.60% and emphasized the need for a prolonged period of elevated borrowing costs due to persistent domestic inflation pressures.

USD/JPY

The US dollar is losing ground against the Japanese yen, extending the corrective move seen over the past two sessions. The pair is testing the 155.80 level for a downside breakout, as traders assess fresh macroeconomic data from Japan. October leading indicators slipped from 110.0 to 109.8 points, while coincident indicators improved from 115.4 to 115.9 points.

Additional support for the yen comes from expectations of possible currency intervention, which Japanese authorities have not ruled out. Earlier this week, Vice Finance Minister for International Affairs and Japan’s top currency diplomat Atsushi Mimura reiterated that the government remains ready to step in to stabilize exchange rates in line with fundamental factors.

Over the past couple of days, the yen has strengthened notably, although it has not fully recovered from last week’s decline. The currency weakened sharply on Friday despite the Bank of Japan’s policy decision, which saw interest rates raised by 25 basis points to 0.75%, in line with expectations. The regulator also left the door open to further monetary tightening if inflation dynamics remain intact. Japan’s national CPI data for November showed inflation easing from 3.0% to 2.9%, while core inflation excluding food and energy slowed from 3.1% to 3.0%.

On Friday at 01:30 (GMT+2), Tokyo inflation data for December will be released. Forecasts suggest the core CPI excluding fresh food could slow from 2.8% to 2.5%. At 01:50 (GMT+2), November retail sales data are expected to decelerate from 1.7% to 0.9%, while industrial production could drop sharply by 2.0% after a 1.5% increase in the previous month.

Meanwhile, US investors continue to digest recent data showing third-quarter GDP growth accelerating from 3.8% to 4.3%, far above the 3.3% consensus forecast. This marked the strongest expansion since the third quarter of 2023. The acceleration was driven by higher defense spending and exports, while imports declined amid elevated tariffs. Industrial production dipped by 0.1% in October but rebounded by 0.2% in November, exceeding expectations of a 0.1% gain.

XAU/USD

Gold prices are edging higher, maintaining a solid short-term and ultra-short-term uptrend. The XAU/USD pair is testing the 4500.00 level for an upside breakout, even as overall market activity gradually declines with many investors heading into the Christmas holidays.

At the same time, volatility is increasing as key market drivers continue to emerge. US GDP growth in the third quarter accelerated from 3.8% to 4.3% year-on-year, while durable goods orders disappointed. In October, annual growth in durable goods orders fell by 2.2% after a 0.7% increase a month earlier, compared with expectations of –1.5%. Core orders excluding transportation declined from 0.7% to 0.2%, versus forecasts of 0.3%.

The consumer confidence index dropped to 89.1 in December from a revised 92.9 in November. These data could influence future Federal Reserve decisions on interest rates. Official Fed projections currently point to only one 25 basis point rate cut at the January 27–28 meeting, while markets are pricing in at least two reductions. It is also worth noting that the Fed chair will change in May 2026, which could render current policy forecasts less relevant.

Much will depend on labor market conditions and inflation risks, which appear to be easing toward year-end. In November, annual consumer inflation slowed from 3.0% to 2.7%, below the 3.1% forecast, while core inflation eased from 3.0% to 2.6%. Gold is also supported by ongoing geopolitical risks: the Russia–Ukraine conflict remains active despite intensified diplomatic efforts involving the US, EU, Ukraine, and Russia. In addition, investors remain concerned about escalating tensions around Venezuela, after US President Donald Trump last week labeled the Venezuelan government a “terrorist organization” and announced a full maritime blockade of oil tankers traveling to and from the country.