We head into the final two weeks of the year after a jam-packed week of big risk events. This time of the year usually means thin liquidity and volumes as desks close books until the new year. Probably most interesting for FX among the recent events was the ECB meeting. While the bank kept rates unchanged as expected, it revised up projections for both GDP growth as well as inflation. But there are mixed views on Wall Street about where the euro goes in 2026. Some forecast the eurozone’s economy remaining resilient next year and pushing EUR/USD above 1.20, while others see inflation easing below target and potentially becoming an issue.

The Bank of England delivered a rate cut of 25bps as expected, while Bank of Japan went the other way and raised rates 25bps. They also come from different starting points with rates in Japan now at 0.75% while the cut in UK moved rates to 3.75%. This divergence could be a key play in the new year as the yen fell sharply after the BoJ hike, with crosses hitting all-time highs.

We’ve had lots of US data recently, but it may have all been distorted by the shutdown. The jobs report was a mixed bag, with notably the unemployment rate increasing to the highest level in four years at 4.6%. Last week’s CPI figures were also noteworthy as they showed a big drop to 2.6% y/y from 3.0% y/y in September. Inflation for October was not recorded due to the US government shutdown.

Fortunately in many ways, markets looked through this noisy set of data as the fog of the government shutdown still keeps us flying somewhat blind. We have gone from policy shock in April muddying the waters through to October, and then the government shutdown muddying the waters again. Whisper it quietly, but we may have another government shutdown in January. Hopes remain for a year-end rally – remember that the true Santa rally is in the very last days of the year and the first of the new one. Lighter trading volumes ahead and through the holiday period may help.

In Brief: major data releases of the week

Tuesday, 23 December 2025

RBA Minutes: These should be interesting as the press conference revealed a hawkish Governor Bullock who said the Board discussed circumstances in which rate hikes might be required. Concerns around persistent inflation have pushed markets into expecting no more policy easing.

US GDP: Growth is expected to slow from the prior 3.8%. But GDP should still remain above a healthy 3%, which could prompt questions around why the Fed cut rates again for a third consecutive time recently, and with inflation stuck around 3%.

Friday, 26 December 2025

Tokyo CPI: This data, forerunner to nationwide inflation, printed at 2.7% in November. Weaker JPY may add upward pressure but falling rice prices and government subsidies on energy are expected to bring inflation lower in 2026.