Key Moments
- US GDP accelerated to 4.4% in July-September, with a leading indicator pointing to a 5.4% annualized pace in October-December.
- The Bank of Japan kept its overnight rate at 0.75% and faced a drop in inflation from 3% to 2.4% in December, underpinning yen weakness and the USDJPY rally.
- Gold moved close to the $5,000-per-ounce level as central banks, including the Bank of Poland, increased bullion purchases amid policy and geopolitical uncertainty.
Key Moments
US Assets Regain Favor After Brief Setback
Market dynamics shifted quickly after Donald Trump stepped back from his tariff threats against Europe. The initial reaction had been a “sell America” stance, but once the tariff risk eased, appetite for US assets re-emerged. The dollar gained ground; however, in contrast with the three-week upswing seen in April and May, this particular bout of strength lasted only one day.
US equity indices also staged a rapid recovery from their April lows. At the same time, foreign investors moved to hedge their currency exposure by selling US dollars. That wave of hedging demand drove EURUSD above 1.17, where the pair has since been consolidating.
US Economic Momentum and Fed Outlook
Last spring, sentiment in Europe was buoyed by Germany’s fiscal stimulus measures and expanded EU defense spending. In parallel, the US economic backdrop now appears considerably more robust than it did in 2025. During the July-September period, US GDP growth quickened to 4.4%. A leading indicator from the Federal Reserve Bank of Atlanta projects that output will increase at a 5.4% annualized rate in October-December.
The labor market has steadied, as highlighted by yesterday’s weekly Unemployment Claims release. Inflation remains well above the stated target. Under these circumstances, the Federal Reserve may remain on hold until at least June. This anticipated pause in policy shifts through the summer is providing meaningful support to the US dollar.
| Indicator / Policy | Latest Detail |
|---|---|
| US GDP (July-September) | 4.4% growth |
| Fed Atlanta leading indicator (October-December) | 5.4% annualized growth forecast |
| Expected Fed stance | Policy on hold until at least June |
Risk Appetite Lifts AUD as RBA Stands Apart
Improved global risk sentiment and stronger-than-expected Australian labor market data have driven AUDUSD to its highest level in 15 months. Unlike the majority of other major central banks, the Reserve Bank of Australia may still raise its key interest rate in 2026, enhancing the Australian dollar’s appeal and positioning it as a market favorite.
Wide Yield Gap Weighs on Yen, Supports USDJPY
The Japanese yen has come under sustained pressure after the Bank of Japan opted to keep its overnight rate unchanged at 0.75%. At the same time, inflation slowed sharply in December, dropping from 3% to 2.4%. These developments have reinforced expectations that the BOJ will refrain from tightening monetary policy until the summer.
The persistence of a wide interest rate differential between Japan and the United States is providing a firm base for further gains in USDJPY, with yield spreads acting as a key driver of the pair’s advance.
| Central Bank | Key Rate / Change | Inflation Detail | Market Implication |
|---|---|---|---|
| Bank of Japan | Overnight rate held at 0.75% | December inflation slowed from 3% to 2.4% | Weak yen, supportive for USDJPY rally |
| Reserve Bank of Australia | Potential rate hike in 2026 | Supported by strong labor data | AUDUSD at 15-month highs |
Gold Nears $5,000 as Central Banks Accumulate Reserves
Gold has capitalized on movements in the US dollar, climbing to within close reach of the psychologically important $5,000-per-ounce threshold. In an environment characterized by uncertainty around White House policy direction and rising geopolitical risks, central banks have been stepping up their bullion purchases.
The Bank of Poland, for example, has publicly stated its plan to expand its gold holdings by 150 tonnes. Such official-sector demand has added another layer of support to the precious metal.
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