US Dollar Slips vs Yen as Global Markets React to Growth and Inflation Signals

Market participants and forex traders focused yesterday on December services sector activity data from the Institute for Supply Management (ISM). The index declined from 54.1 points to 52.5 points, a sharper drop than expected (52.9 points), while the S&P Global composite index fell from 54.2 points to 52.7 points against a forecast of 53.0 points.

Overall, the data confirmed a slowdown in U.S. economic growth, which could strengthen arguments within the Federal Reserve in favor of continuing a dovish policy cycle. However, the rhetoric of monetary authorities remains highly cautious. Minneapolis Fed President Neel Kashkari reiterated concerns about elevated price pressures, noting that higher tariffs could keep inflation risks in place for several more years.

His Richmond Fed counterpart Thomas Barkin emphasized that unemployment remains historically low and inflation is still above the 2.0% target, meaning interest rate decisions should be based strictly on incoming macroeconomic data. A more dovish stance was voiced by Federal Reserve Governor Stephen Miran, appointed by President Trump, who told Fox Business that a cumulative 100-basis-point rate cut over the year would be appropriate, although such an aggressive move is supported only by a minority within the Fed.

Eurozone

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

Traders are assessing fresh macroeconomic data released today. Preliminary December figures showed annual consumer inflation easing from 2.1% to 2.0%, while core inflation slowed from 2.4% to 2.3%. As a result, inflationary pressure continues to weaken, although it remains close to the European Central Bank’s (ECB) 2.0% target.

Meanwhile, Germany’s November retail sales report was mixed: on a monthly basis, sales fell by 0.6% instead of the expected 0.2% increase, while annual growth slowed from 2.1% to 1.1%. Despite repeated signals from policymakers that the easing cycle may be nearing completion, conditions remain in place for further rate adjustments, as the regional economy is slowing and inflation may soon fall below the target threshold.

United Kingdom

The pound is losing ground against the yen, while showing mixed dynamics versus the U.S. dollar and the euro.

December data on activity in the UK construction sector were released today. This remains the only sector of the national economy experiencing prolonged contraction. The index rose from 39.4 points to 40.1 points but still fell short of the 42.2-point forecast. Against this backdrop, most investors believe the Bank of England will continue its dovish policy stance this year to support consumer demand.

Japan

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

Market focus is on December services sector data, which showed the headline index falling from 53.2 points to 51.6 points, a sharper decline than expected (52.5 points), while the composite index dropped from 52.0 points to 51.1 points versus a forecast of 51.5 points. Japanese businesses report a decline in new orders, while input costs and raw material prices rose at the fastest pace since May, as did output prices, largely due to wage increases and higher fuel costs.

Australia

The Australian dollar is showing mixed dynamics against its major peers—the euro, the pound, the yen, and the U.S. dollar.

Inflation data are in focus. On an annual basis, the weighted consumer price index slowed from 3.8% to 3.4% versus a forecast of 3.6%, while the trimmed mean eased from 3.3% to 3.2%, remaining above the Reserve Bank of Australia’s (RBA) target range of 2.0–3.0%. Under these conditions, a prolonged pause in current monetary settings—or even a return to a more hawkish stance later in the year—appears increasingly likely.

Oil

Oil prices resumed their advance after the American Petroleum Institute (API) reported a 2.8 million barrel decline in crude inventories, compared with expectations for a 1.2 million barrel increase. Additional support came from reports of U.S. forces seizing the tanker “Marinera,” linked to Venezuela and sailing under a Russian flag, raising the risk of renewed geopolitical tensions.

At the same time, stronger upside momentum is being limited by statements from U.S. President Donald Trump, who said Washington had reached an agreement with Caracas to export Venezuelan oil worth up to $2.0 billion, with proceeds from resale to be controlled by the U.S. government.