Gold prices rose in European trading on Wednesday, extending gains for a fourth consecutive session and continuing to shatter record highs, after breaking above the $4,500-per-ounce level for the first time in history. The move was driven by strong investment demand for the precious metal, supported by continued declines in the US dollar in the foreign exchange market.

These developments come amid rising expectations that the Federal Reserve will cut US interest rates twice next year. To reprice those expectations, investors are later today awaiting US third-quarter economic growth data.

Price overview

• Gold prices today: Gold rose about 0.95% to $4,525.96 per ounce, an all-time high, from an opening level of $4,484.25, after touching a low of $4,467.84.

• At settlement on Tuesday, gold prices gained 0.9%, marking a third consecutive daily increase.

The US dollar

The US dollar index fell 0.1% on Wednesday, extending its losses for a third straight session and hitting a two-and-a-half-month low, reflecting continued weakness in the US currency against a basket of major and secondary currencies.

As is well known, a weaker US dollar makes dollar-priced gold bullion more attractive to buyers holding other currencies.

These losses come amid active selling of the dollar ahead of the Christmas and New Year holidays, and under pressure from cautious comments by some Federal Reserve officials, which highlighted growing concerns about weakness in the US labor market.

Eric Bregar, head of FX and precious metals risk management at Silver Gold Bull in Toronto, said the US dollar could decline next year, at least in the first quarter, as the Federal Reserve will increasingly be forced to acknowledge that the labor market is not in good shape.

Bregar added that the Fed may be compelled to make greater concessions on interest rate cuts, and at a faster pace than it has so far, noting that markets want rate cuts and that expectations are building for a new, more dovish Federal Reserve chair who would seek to deliver that outcome.

US interest rates

• According to the CME FedWatch tool, pricing for keeping US interest rates unchanged at the January 2026 meeting stands at 87%, while the probability of a 25-basis-point rate cut is priced at 13%.

• Investors are currently pricing two US rate cuts over the course of next year, while the Federal Reserve’s own projections point to just one 25-basis-point cut.

• To reprice these expectations, investors are closely monitoring further US economic data releases, along with comments from Federal Reserve officials.

Gold outlook

Analysts at Mitsubishi said that with precious metals hitting record prices at this late point in the year — a time when one would usually be writing a Christmas card or two — the key takeaway may be that investors have not treated the holiday period as an opportunity to take profits.

Zain Vawda, market analyst at OANDA’s MarketPulse, said that bets on interest rate cuts have increased following the latest US inflation and labor market data, which is supporting demand for precious metals.

Vawda added that demand for safe-haven assets is also expected to remain strong amid tensions in the Middle East, uncertainty over reaching a peace agreement between Russia and Ukraine, and recent US actions against Venezuelan oil tankers.

SPDR fund

Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged on Tuesday, leaving total holdings steady at 1,054.56 metric tons, the highest level since June 23, 2022.

The euro rose in European trading on Wednesday against a basket of global currencies, extending its gains for a third consecutive session against the US dollar and hitting a three-month high. The move was supported by continued selling of the US currency in the foreign exchange market ahead of the Christmas holiday period.

The single currency has also been buoyed by declining expectations that the European Central Bank will cut interest rates in February 2026, particularly amid improving economic activity in the euro area in recent weeks, alongside expectations that this improvement will continue as downside risks ease.

Price Overview

• Euro exchange rate today: The euro rose about 0.15% against the dollar to $1.1808, its highest level since September 25, from an opening level of $1.1794, after touching an intraday low of $1.1786.

• The euro ended Tuesday’s session up 0.3% against the dollar, marking a second consecutive daily gain, amid hopes that the European Central Bank will keep interest rates unchanged for as long as possible in 2026.

The US dollar

The US dollar index fell 0.1% on Wednesday, extending its losses for a third straight session and hitting a two-and-a-half-month low, reflecting continued weakness in the US currency against a basket of major and secondary currencies.

These losses come amid active selling of the dollar ahead of the Christmas and New Year holidays, and under pressure from cautious comments by some Federal Reserve officials, which highlighted growing concerns about weakness in the US labor market.

Eric Bregar, head of FX and precious metals risk management at Silver Gold Bull in Toronto, said that the US dollar could weaken next year, at least in the first quarter, as the Federal Reserve will increasingly be forced to acknowledge that the labor market is not in good shape.

Bregar added that the Fed may be compelled to make greater concessions on interest rate cuts than it has so far, noting that markets want lower rates and that expectations are building for a new, more dovish Federal Reserve chair who would seek to deliver that outcome.

European interest rates

• Money market pricing for a 25-basis-point rate cut by the European Central Bank in February 2026 remains below 10%.

• To prompt a repricing of these expectations, investors are awaiting further economic data from the euro area, including inflation, unemployment, and wage figures.

Interest rate differential

Following the Federal Reserve’s latest decision, the interest rate gap between Europe and the United States narrowed to 160 basis points in favor of US rates, the smallest differential since May 2022, which supports further gains in the euro against the US dollar.

The Japanese yen rose in Asian trading on Wednesday against a basket of major and secondary currencies, remaining in positive territory for a third consecutive session against the US dollar. The move followed strong warnings from Japanese authorities signaling Tokyo’s readiness to intervene to support the local currency.

Meanwhile, according to the minutes of the Bank of Japan’s October meeting, policymakers discussed the need to continue raising interest rates toward levels considered neutral for the economy. Several of the nine board members noted that recent declines in the yen could lead to excessive inflation through higher import costs.

Price Overview

• Japanese yen exchange rate today: The dollar fell 0.4% against the yen to 155.55, from an opening level of 156.21, after recording an intraday high of 156.28.

• The yen ended Tuesday’s session up around 0.4% against the dollar, marking a second consecutive daily gain following strong Japanese warnings over excessive currency movements.

Japanese authorities

Japanese Finance Minister Satsuki Katayama confirmed that Japan has “full freedom of action” to take bold steps to deal with excessive volatility in the yen.

Speaking at a press conference on Tuesday, Katayama said that recent movements in the local currency do not reflect market fundamentals at all, but are driven by speculation, giving Tokyo justification to intervene in the market if necessary.

Katayama added that the government would take appropriate action to counter excessive movements, based on Japan’s agreement with the United States reached in September regarding exchange rate policy.

Earlier on Monday morning in Tokyo, Japan’s top currency diplomat Atsuki Mimura and Chief Cabinet Secretary Minoru Kihara both expressed concern over “sharp and volatile” moves in the foreign exchange market.

They stressed that Japanese authorities are closely monitoring currency developments and warned that officials are ready to take appropriate measures if needed, in a clear signal of potential intervention to curb excessive volatility.

Bank of Japan

According to the minutes of the Bank of Japan’s October meeting, released today in Tokyo, policymakers discussed the need to continue raising interest rates toward levels viewed as neutral for the economy, with some members arguing this would help achieve stable long-term growth.

Several of the nine board members warned that recent declines in the yen could fuel excessive inflation due to rising import costs.

At the October 29–30 meeting, the Bank of Japan kept interest rates unchanged at 0.5%, but Governor Kazuo Ueda sent a strong signal that a rate hike could be approaching. The two hawkish members, Hajime Takata and Naoki Tamura, opposed that decision and unsuccessfully proposed raising rates to 0.75%.

At the subsequent meeting held this month in December, the central bank raised interest rates to 0.75%, the highest level since September 1995, marking the second hike in 2025 after an earlier increase in January.

The October meeting minutes showed that many members already believe conditions are in place for further rate hikes, but they want greater clarity on whether companies will continue raising wages next year, especially amid ongoing uncertainty over the impact of higher US tariffs.

Japanese interest rates

• Market pricing for a quarter-point rate hike by the Bank of Japan at its January meeting remains stable around 20%.

• To prompt a repricing of these expectations, investors are awaiting further data on inflation, unemployment, and wages in Japan.

After months of operating in the dark, markets finally received some inflation data last week. The long-delayed November Consumer Price Index offered an official glimpse into day-to-day price pressures after a record-length government shutdown had disrupted the economic calendar.

The figures themselves were better than expected. Headline inflation came in at 2.7% year on year, while core inflation registered 2.6%. That was below the near-3% readings economists had been bracing for, and it kept inflation within the psychologically important “two-handle” range that markets have become fixated on heading into 2026.

At the same time, the report was far from ideal or “clean.” Because the US Bureau of Labor Statistics was unable to collect October price data during the shutdown, the release lacked the usual month-to-month changes that analysts rely on to gauge momentum. Instead, it resembled a sharp snapshot — confirmation of where inflation currently stands rather than a clear signal of where it is heading next.

That distinction matters. And not just for interest rates.

When inflation becomes a question about America itself

In 2025, inflation stopped being merely a story about prices. Instead, it became part of a broader question markets were asking about the United States itself — namely, whether US assets still deserve the “premium” they have enjoyed for more than a decade, across everything from equities and bonds to the dollar itself.

On that front, the details of the CPI report offered little reassurance. Prices for furniture and “household operations” — a broad category covering everything from cups and cutlery to shovels and lawn trimmers — continued to rise as companies began passing through higher import costs linked to tariffs. Food inflation also remained stubborn, with meat, poultry, and egg prices up about 5% over the past year. Housing costs continued to climb as well, with shelter prices rising roughly 3% year on year.

This mix has become familiar: uneven goods inflation, tariffs quietly doing their work in the background, and persistently elevated rents and housing costs. Federal Reserve Chair Jerome Powell has repeatedly pointed to trade policy as one reason inflation has exceeded expectations, while also stressing that officials need clearer evidence before concluding whether price pressures reflect a one-off adjustment or something more durable. For currency markets, that ambiguity carries real consequences.

Why inflation matters for the dollar even when it is falling

Currency markets are not always sensitive to inflation itself. What matters is what inflation signals — about growth, policy, credibility, governance, and, perhaps above all, predictability.

Over the past decade, the United States was able to tolerate higher inflation without its currency being punished. During the pandemic, for example, the dollar initially surged as a safe haven and then remained unusually strong for years as the US economy outperformed its peers and led the global rate-hiking cycle. Stronger growth, higher yields, deep capital markets, and institutional stability — as long as that mix held together, the dollar premium remained intact.

In 2025, that mix began to fray.

Even as inflation eased, it did so amid tariff-driven distortions, political pressure on the Federal Reserve, and months of missing data that made the economic picture harder to read. Investors were no longer asking only whether prices were falling quickly enough; they were questioning whether the rules of the game themselves were changing.

That reassessment defined the dollar’s year.

Why 2025 may be remembered as the year the world blinked at the dollar

At the start of January, the dollar entered the year near its recent historic highs, supported by a decade-long rally. Then the tide turned.

From January through June, the dollar fell about 11% against a basket of major currencies — its worst first-half performance since the early 1970s, when the collapse of the Bretton Woods system and the oil crisis upended the global order.

What changed had less to do with monetary policy and more to do with expectations. After the 2024 election, markets largely assumed another phase of US outperformance, supported by capital inflows, resilient American consumers, and a politically independent Federal Reserve. That narrative cracked in the spring, when fresh tariff announcements and broader uncertainty forced investors to rethink growth, inflation, and public debt all at once.

Crucially, the dollar weakened even as the Federal Reserve resisted signaling imminent rate cuts. Instead, markets began pricing a different story: slower US growth, eroding governance advantages, and a loss of clarity. Once investors stopped believing the United States was unambiguously dominant, the dollar’s yield premium stopped doing the same work.

Capital flows followed. Foreign investors hold more than $30 trillion in US assets, much of it historically unhedged against currency risk — an implicit bet on a strong dollar. As the currency slid in early 2025, those same investors began adding currency hedges, effectively selling dollars into the market. Given the scale of foreign ownership of US assets, even small shifts in hedging behavior can generate meaningful pressure.

A floor without a rebound

By mid-year, the dollar’s decline had stabilized. Some stronger-than-expected economic data in July, along with signs that tariffs were not hitting activity as hard as feared, helped steady sentiment. But stabilization is not recovery.

For most of the second half of 2025, the dollar hovered near its lows, moving sideways without a convincing rebound. That behavior itself is telling. The initial repricing of US dominance may be complete, but the old premium has not been restored — artificial-intelligence equities notwithstanding.

Then came Thursday’s inflation report.

Had the CPI data delivered a clean, decisive disinflationary trend, it might have provided a catalyst — reinforcing the idea that inflation risks were fading, that the Federal Reserve could ease policy with confidence, and that US outperformance was reasserting itself. Instead, markets received only a partial signal. Inflation is easing, but unevenly; tariffs are still pushing prices higher; uncertainty remains elevated. For currency markets that prize clarity, that was not enough to alter the prevailing dynamic.

Is the dollar “finished” in 2026?

That is the wrong question. The better one is whether markets will complete the recalibration that began in 2025 — or decide that the United States remains, for better or worse, the least risky place in the world.

Some strategists, including those at Morgan Stanley, expect further dollar weakness as US growth slows, interest-rate differentials narrow, and foreign investors continue to hedge. Others argue that the downturn implied by recent consumer-confidence surveys could, paradoxically, trigger a renewed “flight to safety” that supports the US dollar.

Both outcomes are plausible. What seems less likely is a swift return to the effortless dollar dominance that characterized much of the 2010s.

What this means for all of us

Currency moves are among the most abstract forces in markets — a haze of decimals and charts. Until, of course, they show up in real life. A weaker dollar means more expensive foreign travel, costlier imports — champagne, handbags, those nice French shoes I keep eyeing online — and fewer bargains overall. For most households, it is a slow accumulation of costs that makes life feel just a bit more expensive.

The real story is not the dollar’s 11% decline. It is what caused it. For the first time in a long while, investors around the world are pricing the possibility that “American exceptionalism” may come with an expiration date.

Whether they are right or wrong, that shift in expectations looks to me like the most consequential repricing of 2025.