Market participants and forex traders are focused on December inflation data. Core CPI, which excludes food and energy, rose by 0.2% month-over-month and 2.6% year-over-year in December, undershooting expectations of 0.3% and 2.7%, respectively. The broader CPI measure increased by 0.3% m/m and 2.7% y/y, fully matching preliminary estimates, but triggering a mixed investor reaction. On one hand, price pressure remained stable; on the other, inflation is still well above the Fed’s 2.0% target—an important factor for policymakers when setting the future course of monetary policy. As a result, the Fed will likely keep rates unchanged at 3.50–3.75% at its January 29 meeting. In this context, Richmond Fed President Thomas Barkin called the December figures “encouraging,” while noting that consumer prices often accelerate early in the year, so caution is warranted before adjusting policy. Investors are also wary of a potential escalation in the diplomatic standoff between the world’s two largest economies after U.S. President Donald Trump said Washington would impose an additional 25.0% tariff on imports from countries trading with Iran amid ongoing protests. Since China maintains active ties with the Islamic Republic, Chinese goods could be affected as well, likely prompting retaliatory measures and adding pressure to global trade.

Eurozone

The euro is strengthening against the U.S. dollar and weakening versus the yen, while showing mixed performance against the pound.

With no major domestic releases, price action is being driven primarily by external factors. Still, traders took note of updated projections from the Banque de France. Officials estimate that GDP grew by at least 0.2% in Q4 despite political uncertainty, with aerospace and defense cited as key drivers. However, the outlook for January turned more negative: the central bank expects activity in the manufacturing sector to slow, mainly due to weaker output and fewer new orders. Separately, Finland’s central bank governor Olli Rehn defended Fed Chair Jerome Powell, warning that a loss of central bank independence would fuel inflation, undermine investor confidence, and weaken financial stability.

United Kingdom

The pound is gaining against the U.S. dollar but is trading mixed versus the euro.

Today, investors reacted to a business sentiment report from the Institute of Chartered Accountants in England and Wales (ICAEW), which showed the index falling to –11.1 points in Q4—its lowest level since late 2022. In addition, 64.0% of surveyed UK companies said high tax rates have become a material challenge for business activity.

Japan

The yen is gaining against its major peers—the euro, the pound, and the U.S. dollar.

The yen is rebounding after USD/JPY hit 2024 lows near 159.45, reviving concerns that authorities could again resort to FX intervention to stabilize the currency. Overall, the fundamental backdrop remains unfavorable for the yen, especially after media reports suggested Prime Minister Sanae Takaichi may dissolve the lower house and call snap elections for February 8. If confirmed, the FY2026 budget may not be approved in March, potentially delaying fiscal measures aimed at containing price pressures. Meanwhile, the Reuters Tankan business sentiment index—based on a monthly survey of executives at large domestic firms—fell from 10.0 to 7.0, a six-month low. The most pessimistic sentiment was recorded in commodities, as well as the oil, steel, and chemicals sectors.

Australia

The Australian dollar is weakening against the pound and the yen, while trading mixed versus the euro and the U.S. dollar.

Today’s focus was on construction-sector data, which showed building approvals jumping 15.2% month-over-month after a –6.1% decline in October. Approvals for private houses rose by 1.3% after an equivalent drop previously. Overall, the figures reinforce the resilience of a key pillar of the domestic economy and increase the likelihood that the Reserve Bank of Australia (RBA) keeps policy settings unchanged for an extended period—potentially through year-end.

Oil

Oil prices continue to trend higher amid fears of potential supply disruptions from Iran as geopolitical tensions between Tehran and Washington intensify.

Earlier, U.S. President Donald Trump urged the opposition to continue protests and said the U.S. would provide necessary support—comments investors interpreted as raising the risk of military escalation. In response, Iranian authorities reportedly put missile systems on heightened alert and warned they are prepared to strike U.S. bases in the region. Additional support is coming from OPEC data showing Russia’s crude output fell 0.7% last year, tightening supply. At the same time, the rally is being capped by weekly inventory figures from the American Petroleum Institute (API), which showed stocks rising by 5.27 million barrels—above analyst expectations.