Forex Market Update: EUR/USD Awaits ECB, GBP Weakens, Gold and Yen Consolidate

In addition, the ECB refinancing rate stands at 2.15%, which is already close to target levels. Moreover, ECB officials have previously indicated that a review of the accommodative monetary policy cannot be ruled out, emphasizing that the current “dovish” cycle can be considered almost complete.

Inflation data for the euro area released the previous day further reinforced these expectations. Core harmonized consumer price inflation rose by 2.4% year-on-year in November, while on a monthly basis it declined by the same 0.5%. The broader inflation measure eased from 2.2% to 2.1% year-on-year and recorded –0.3% month-on-month. At the same time, pressure on the single currency came from December business activity data in Germany published by the IFO Institute: the business climate index fell from 88.0 to 87.6 points versus expectations of 88.2, while the expectations index declined from 90.5 to 89.7 points. A slowdown in business activity is being observed across the region, fueling concerns about future economic growth.

Many experts are increasingly speaking of a systemic crisis, from which the bloc may take several years to emerge even under the most favorable conditions. Germany’s weakening indicators are largely driven by sharply higher energy prices and intensified competition in global markets dominated by Chinese manufacturers.

Forecasts suggest that Germany’s gross domestic product (GDP) may grow by only 0.2% this year, though even this outlook could prove optimistic as authorities continue to cut social spending while increasing defense budgets amid the Russia–Ukraine conflict. Meanwhile, the U.S. dollar remains under pressure following mixed U.S. labor market data. In November, the U.S. economy added around 64.0 thousand nonfarm jobs versus a forecast of 50.0 thousand, while October saw a decline of 105.0 thousand amid the impact of the government shutdown. At the same time, the unemployment rate rose notably from 4.4% to 4.6%. These figures have strengthened expectations of further easing by the Federal Reserve in 2026, although the official outlook remains unchanged, with the regulator still signaling only one 25-basis-point rate cut next year.

GBP/USD

The British pound is losing ground against the U.S. dollar, with the GBP/USD pair consolidating near 1.3370 after attempting to extend a strong corrective move formed the previous day. Markets expect the Bank of England to cut its interest rate by 25 basis points to 3.75%, despite inflation remaining above the regulator’s 2.0–3.0% target range. Recent consumer price index data showed that core inflation slowed year-on-year from 3.4% to 3.2% in November, while the headline figure fell from 3.6% to 3.2% against expectations of 3.5%. On a monthly basis, inflation dropped from 0.4% to –0.2% versus forecasts of 0.0%. The faster-than-expected decline in inflation has led markets to revise borrowing cost expectations, now pricing in roughly a 67-basis-point reduction by the end of 2026, compared with 58 basis points previously.

Investors and forex traders also focused on retail price index data, which fell sharply in November from 4.3% to 3.8% year-on-year and from 0.3% to –0.4% month-on-month. This has further influenced expectations ahead of the Bank of England’s rate decision on Thursday, December 18. In the U.S., inflation data will be released today at 15:30 (GMT+2). Analysts expect core CPI, excluding food and energy, to remain at 3.0%, while the headline measure is forecast to rise from 3.0% to 3.1%. In addition, weekly jobless claims data will be published, with initial claims for the week ending December 12 expected to decline from 236.0 thousand to 225.0 thousand, while continuing claims are projected to increase from 1.838 million to 1.940 million.

AUD/USD

The Australian dollar is showing near-flat dynamics against the U.S. dollar, with the AUD/USD pair consolidating around 0.6600. The greenback remains under pressure following the U.S. Department of Labor’s November report. The most negative element was the rise in the unemployment rate from 4.4% to 4.6%, partly linked to the effects of the government shutdown, during which many federal employees were placed on unpaid leave and others were laid off.

Weak labor data have strengthened expectations of monetary policy easing by the Federal Reserve in 2026. It is also worth noting that the head of the Fed is set to change next year, with White House economic adviser Kevin Hassett currently viewed as one of the leading candidates, known for supporting a faster pace of rate cuts. Meanwhile, support for the Australian dollar came from inflation expectations data published by the Melbourne Institute, which showed that 12-month expectations rose from 4.5% to 4.7% in December. This could prompt a more hawkish stance from the Reserve Bank of Australia (RBA). Tomorrow at 17:00 (GMT+2), U.S. inflation expectations data from the University of Michigan will be released, with one-year expectations expected to remain at 4.1% and five-year expectations at 3.2%.

USD/JPY

The U.S. dollar is showing mixed performance against the Japanese yen, with USD/JPY consolidating near 155.75 amid relatively low market activity. Traders are focusing on data related to foreign investment flows in Japan. Investment in foreign bonds slowed from 456.3 billion yen to 356.4 billion yen, while foreign investment in Japanese equities surged from 132.8 billion yen to 528.3 billion yen, which is seen as a positive signal for the yen.

In the U.S., inflation data due at 15:30 (GMT+2) could influence future Federal Reserve rate decisions. Core CPI is expected to remain at 3.0%, while the headline figure may rise from 3.0% to 3.1%. These outcomes could reinforce expectations of a pause in the Fed’s easing cycle. Weekly jobless claims data will also be released, with initial claims expected to fall from 236.0 thousand to 225.0 thousand and continuing claims to rise from 1.838 million to 1.940 million. Meanwhile, Japanese investors are preparing for November inflation data on Friday at 01:30 (GMT+2), with core CPI excluding fresh food prices expected at 3.0%. At 05:00 (GMT+2), the results of the Bank of Japan meeting will be announced. According to a Bloomberg survey, all 50 economists expect the central bank to raise its key interest rate to 0.75%. There is a high probability that policymakers will then pause the tightening cycle amid stabilizing inflation risks and the economic policy of Japanese Prime Minister Sanae Takaichi.

XAU/USD

The XAU/USD pair is consolidating near the 4335.00 level, as investors and forex traders remain cautious and prefer to wait for new catalysts before opening fresh positions. Today, meetings of the Bank of England and the European Central Bank will take place, with decisions announced at 14:00 (GMT+2) and 15:15 (GMT+2), respectively. The ECB is expected to leave monetary policy unchanged, while the Bank of England is forecast to announce another 25-basis-point rate cut to 3.75%.

It is also possible that the Bank of England will signal a continuation of its dovish rhetoric in early 2026, despite inflation remaining well above target levels. In the U.S., inflation data will be released at 15:30 (GMT+2), with core CPI expected at 3.0% and headline CPI forecast to rise from 3.0% to 3.1%. These results could support expectations of a pause in the Fed’s rate-cut cycle. Weekly jobless claims will also be published, with initial claims expected to decline to 225.0 thousand and continuing claims to increase to 1.940 million.