Positive news about U.S. technology stocks, along with mixed U.S. data, boosted the market's performance the previous day. However, doubts about a slowdown in U.S. data collection for inflation and mixed geopolitical news tempered the optimism before Friday’s slight optimism. The Bank of Japan (BoJ) raised its benchmark rate by 0.25% to a 30-year high, in line with market expectations, marking Japan’s cautious departure from ultra-easy monetary policy. This rate hike came after a similar move in January, signaling a gradual tightening in 2025.
Leading up to the BoJ's announcement, the yen softened slightly, but after the decision, there was a brief uptick in yen strength before it pulled back.
The BoJ emphasized that real interest rates remain negative, with accommodative monetary conditions still in place, and hinted at future rate hikes if economic conditions evolve as expected. Meanwhile, the 10-year Japanese Government Bond (JGB) yield hit its highest level since May 2006.
Toyota announced plans to sell U.S.-made vehicles in Japan to ease trade tensions, though this is not expected to have a major short-term impact. Japan’s Finance Minister Katayama highlighted the need for fiscal sustainability and debt reduction, while also revising tax relief costs higher.
Japan’s core consumer price index (CPI) held steady at 3.0% in November, reinforcing the BoJ’s outlook for gradual tightening. In security matters, a source in the prime minister’s office suggested Japan may need nuclear arms due to growing security concerns, sparking political debate.
On Thursday, despite lively economic data, the FX market was flat. The Euro saw a slight decline, and U.S. inflation data sparked confusion. A significant miss in the Consumer Price Index (CPI) led to initial USD selling, but doubts emerged due to missing data points caused by the government shutdown.
The European Union (EU) agreed to a €90 billion financing deal for Ukraine for 2026-2027, showing long-term support through collective borrowing, and raising tensions surrounding the Ukraine-Russia peace.
The European Central Bank (ECB) kept its monetary policy unchanged, as expected, and the Bank of England (BoE) cut its benchmark rate by 0.25%, leading to brief gains for the British pound (GBP).
UK consumer confidence rose slightly in December but remained low at -17, signaling cautious growth expectations. In other data, the U.S. CPI for November dropped to 2.7% YoY, below the expected 3.1%, with the Core CPI also falling to 2.6%, the lowest since April 2021. U.S. weekly Initial Jobless Claims decreased to 224K, and the Philadelphia Fed Manufacturing Index dropped to -10.7, worse than expected.
Gold saw volatility, while silver cooled off after hitting record highs. Stocks benefited from a big revenue beat from Micron, with the Nasdaq leading a recovery after several days of declines.
The U.S. Dollar Index (DXY) showed signs of recovery, pushing USDJPY higher and putting pressure on gold buyers. EURUSD and GBPUSD faced downward pressure, while AUDUSD and NZDUSD showed weakness after recent rebounds. USDCAD posted mild gains. WTI crude oil remained under pressure, and Bitcoin (BTC) and Ethereum (ETH) posted daily gains but faced weekly losses. Wall Street closed positively, with the Nasdaq leading, while Asian-Pacific stocks saw modest gains.
EURUSD extended its four-day losing streak despite the European Central Bank (ECB) taking no action, as the ECB hinted that rate cuts remain possible, especially amid mixed economic data. Meanwhile, the UK’s consumer sentiment improved but stayed negative, putting downside pressure on GBPUSD and reversing the previous day’s rebound, even after the Bank of England (BoE) cut rates. This decline was largely due to BoE Governor Andrew Bailey’s optimistic outlook.
USDJPY followed a classic "buy the rumor, sell the news" pattern, hitting a weekly high despite the BoJ's rate hike. This move was largely driven by softer inflation data from Japan and mixed geopolitical news, which, combined with the market already pricing in the rate hike, led to the pair's rise.
Thursday was a turnaround for the AUDUSD, NZDUSD, and USDCAD pairs, but by Friday, AUDUSD and NZDUSD fell, while USDCAD recovered. This shift was linked to the market's cautious mood, a stronger U.S. Dollar (USD), and mixed data and news from Australia, New Zealand, and Canada. Meanwhile, Canadian Prime Minister (PM) Mark Carney stated, “Sectoral deals are unlikely, talks likely to roll into the United States-Mexico-Canada Agreement (USMCA) review,” raising concerns for the Canadian Dollar (CAD), especially amid softer crude oil prices, which is Canada’s key export.
Gold prices extended the previous day’s retreat from a two-month high, despite lacking strong downside momentum. Meanwhile, WTI crude oil remained mildly offered after reversing its mid-week rebound from a four-year low. The market's cautious optimism allowed traders to pare back previous gains in gold, reducing demand for the precious metal, while crude oil struggled amid mixed factors, including optimism over a potential Ukraine-Russia peace deal, tensions in Venezuela, and higher inventory draws.
Bitcoin (BTC) broke its two-day losing streak, while Ethereum (ETH) posted its first daily gain in six, as the market consolidated and tracked firmer equities, particularly technology stocks. Stocks benefited from a strong revenue beat by Micron, with the Nasdaq leading a recovery after several days of declines. Early results from FedEx indicated positive economic signs, boosting market optimism.
Tesla’s long-awaited Cybercab was reportedly spotted testing on public roads in Austin, Texas, fueling speculation about the company’s progress on autonomous ride-hailing vehicles. This development could positively impact Tesla’s stock as it advances toward its robotaxi goals.
Wall Street’s benchmarks, including the Dow Jones (+0.14%), S&P 500 (+0.79%), and Nasdaq (+1.38%), began Thursday’s trading positively. Additionally, Trump Media, the parent company of Truth Social, announced a merger with fusion power company TAE Technologies, giving U.S. equity markets an initial boost.
With German GfK Consumer Confidence, PPI, and Retail Sales data from both Germany and the UK, alongside U.S. housing and sentiment data, Friday’s economic calendar promises to keep markets on edge.
Given lingering doubts over the accuracy of U.S. data due to the recent government shutdown and the generally firmer sentiment, the U.S. Dollar may finish the week on a mixed note, providing some space for Gold to rebound. Meanwhile, cryptocurrencies and equities could continue to defend their latest recovery moves, unless any unexpected risk-negative headlines emerge—a scenario that seems less likely at this point.
May the trading luck be with you!
