EUR / USD
EUR/USD jumped higher on the back of another day of dollar weakness. The second estimate of Q3 GDP surprised to the upside, growing at 4.3% QoQ. The stronger-than-expected growth print, driven by solid consumer spending and exports, represents the fastest pace of expansion in two years and highlights ongoing pockets of resilience in the US economy.
However, this upbeat growth backdrop contrasts with weaker consumer confidence, which slipped in December to its lowest level in over eight months amid broadening concerns about prices, jobs and trade policy. Strong headline growth alongside declining confidence may signal that underlying momentum is beginning to soften into Q4, a trend the Fed will be watching closely as it evaluates the broader economic outlook.
Technical indicators support this upward trend, with the pair maintaining positions above critical moving averages while trading between 1.176 and 1.180, though the RSI reading of 72 suggests near-term overbought conditions that warrant careful monitoring. The dollar's structural weakness, combined with the ECB's commitment to maintaining higher rates until inflation reaches target levels by mid-2026, creates a supportive environment for continued euro strength into the year-end.
USD / JPY
USD/JPY weakened as Japanese authorities signal increased readiness to intervene in currency markets, with Finance Minister Katayama emphasising Japan's "free hand" to combat excessive moves. Despite the Bank of Japan's recent rate hike to 0.75%, the yen initially failed to strengthen due to Governor Ueda's cautious stance on future rate increases, disappointing market expectations.
The currency pair has shown technical weakness, declining by 0.52% from 157.04 to 156.22, while finding support at the 20-day moving average of 155.87. The interplay between monetary policy divergence presents a crucial inflection point, as the BOJ begins normalisation while markets anticipate multiple Fed rate cuts for 2026.
Market dynamics are further complicated by Prime Minister Takaichi's expansionary fiscal plans, which continue to weigh on the yen, while the psychological level of 160 remains a critical threshold where previous interventions have occurred. This underscores that markets are likely to be cautious about excessive yen weakness, especially above the 158.00 mark; however, the underlying economic factors weigh on the yen’s fundamental value, likely to keep USD/JPY historically elevated.
GBP / USD
The GBP/USD pair has demonstrated significant strength, reaching 1.352 and maintaining levels well above key technical indicators, despite mixed economic signals from both nations. The Bank of England's recent 25bps rate cut to 3.75% came with notably hawkish undertones, evidenced by a narrow 5-4 split vote and persistent inflation at 3.2% YoY.
The diverging monetary policy paths between the two central banks, with the BoE maintaining a more cautious approach while the Fed faces increasing political pressure for further easing, provide fundamental support for sterling. Technical indicators suggest the pair is in overbought territory with an RSI of 74, though institutional participation remains strong, particularly during mid-session trading.
The improved UK current account deficit offers some structural support for the pound, even as the pair approaches significant resistance levels near the September high of 1.3545. The combination of hawkish BoE policy, favourable yield differentials, and strong technical positioning suggests continued upside potential for GBP/USD, provided it maintains its position above the crucial 1.35 level.
