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Euro extends gains to two-month high on strong demand
The euro rose in European trading on Thursday against a basket of global currencies, extending gains for a second consecutive session against the US dollar and marking its highest level in two months. The move came amid strong demand for the single currency as one of the most attractive investment opportunities in the foreign-exchange market, especially after the interest-rate gap between Europe and the United States narrowed further.
The US dollar deepened losses after the Federal Reserve’s meeting delivered a tone that was less hawkish than markets had anticipated, encouraging investors to increase their bets on two additional rate cuts in 2026.
European Central Bank President Christine Lagarde highlighted the recent improvement in economic activity across the eurozone and hinted that growth forecasts could be revised higher at next week’s policy meeting.
Price overview
• EUR/USD today: the euro rose 0.1% to 1.1707 dollars — its highest since 17 October — from an opening level of 1.1695 dollars, after touching a low of 1.1690 dollars.
• The euro ended Wednesday up 0.6% against the dollar — its first gain in five sessions and the strongest daily rise since 16 September — supported by the outcome of the Federal Reserve meeting.
US dollar
The dollar index fell 0.1% on Thursday, deepening losses for a second straight session and hitting a two-month low of 98.54, reflecting continued weakness in the US currency against a basket of global peers.
The Federal Reserve on Wednesday cut interest rates by 25 basis points at the conclusion of its final meeting of the year, lowering the target range to 3.75% — the lowest since September 2022 — marking a third consecutive rate cut.
However, Fed Chair Jerome Powell’s comments at the press conference were less hawkish than investors expected, surprising markets that had anticipated a more aggressive stance.
The meeting reinforced market expectations for two additional rate cuts next year, compared with the Fed’s median projection of just one 25-basis-point cut.
Nick Rees, head of macro research at Monex Europe, said: “For us, the key takeaway was the tilt toward monetary easing in both the updated policy statement and Chair Powell’s press conference.”
Christine Lagarde
ECB President Christine Lagarde said Wednesday that the eurozone economy has shown notable resilience amid global trade tensions and that growth is now approaching its potential pace — a shift that could prompt the ECB to lift its growth forecasts at next week’s policy meeting.
Speaking at a Financial Times event, Lagarde noted that the ECB raised its projections during the last forecasting round, adding that “we may do so again in December.” She pointed to improving sentiment indicators — particularly in business and manufacturing — as well as labor-market data that continue to show economic strength.
Lagarde reiterated that monetary policy is “in a good place,” which investors interpret as a signal that no rate adjustments are currently needed.
European interest rates
• Market pricing for a 25-basis-point rate cut by the ECB in December remains below 10%.
• Reuters sources indicated that the ECB is likely to keep rates unchanged at the upcoming December meeting.
Interest-rate gap
Following the Fed’s decision, the interest-rate gap between Europe and the United States narrowed to 160 basis points in favor of US rates — the smallest spread since May 2022 — a development that supports further appreciation in the euro against the US dollar.
Yen extends recovery on Fed's stance
The Japanese yen rose in Asian trading on Thursday against a basket of major and minor currencies, extending its recovery for a second consecutive session against the US dollar, supported by a wave of selling in the greenback after the Federal Reserve’s meeting delivered a tone that was less hawkish than markets had expected.
The Bank of Japan meets next week, and markets now broadly expect a 25-basis-point rate increase. Investors will be watching Governor Kazuo Ueda closely for clearer guidance on the policy path through 2026.
Price overview
• USD/JPY today: the dollar fell about 0.35% against the yen to 155.49¥, from the opening level of 156.00¥, after touching a high of 156.01¥.
• The yen ended Wednesday up 0.5% against the dollar — its first gain in four sessions — rebounding from a two-week low of 156.96 yen, supported by the outcome of the Fed meeting.
US dollar
The dollar index fell 0.1% on Thursday, deepening losses for a second straight session and hitting a two-month low of 98.54, reflecting continued weakness in the US currency against a basket of global peers.
The Federal Reserve on Wednesday cut interest rates by 25 basis points at the conclusion of its final meeting of the year, bringing the target range down to 3.75% — the lowest since September 2022 — marking a third consecutive cut.
However, Fed Chair Jerome Powell’s comments at the press conference were less hawkish than investors anticipated, surprising markets that had expected a more aggressive tone.
Nick Rees, head of macro research at Monex Europe, said: “For us, the key takeaway was the tilt toward monetary easing in both the policy statement updates and Chair Powell’s press conference.”
Japanese interest rates
• Following recent inflation and wage data in Japan, market pricing for a 25-basis-point rate hike at the December meeting has stabilized above 80%.
• Governor Kazuo Ueda last week offered a more optimistic outlook on Japan’s economy, saying the Bank of Japan would examine the benefits and drawbacks of raising rates at its upcoming policy meeting.
• Three government officials told Reuters the central bank is likely to raise interest rates in December.
Bank of Japan
The Bank of Japan meets next week with strong expectations for a 25-basis-point hike, which would lift the policy rate to around 0.75% — the highest level since 2008, before the global financial crisis.
Markets will focus on Governor Ueda’s guidance for 2026, at a time when expectations are mounting that the Japanese government may pursue further fiscal expansion, adding complexity to the policy outlook for the BOJ.
Bank of Canada holds rates at 2.25%, says the economy has shown “resilience”
The Bank of Canada kept its key interest rate at 2.25 percent, a move widely expected after encouraging third-quarter data showed the Canadian economy’s ability to withstand some of the disruptions stemming from the trade war.
Governor Tiff Macklem said in his opening remarks on Wednesday that the current rate “appears to be at the right level” to support the economy through a “structural transition period,” while keeping inflation near the bank’s 2 percent target.
Macklem added: “That said, uncertainty remains high, and the range of potential outcomes is wider than usual. If the outlook changes, we are prepared to act.”
During the bank’s October meeting, the governor warned that the Canadian economy would face structural damage from U.S. tariffs.
Since then, the economy has proven more resilient than expected: GDP and job growth both beat forecasts in the third quarter, and the unemployment rate fell to 6.5 percent in November.
Even so, consumer spending and business investment remained nearly flat. That is likely to change in the fourth quarter, as the bank expects economic growth to slow.
Inflation is holding slightly above 2 percent, while the Bank of Canada’s core inflation measures — which exclude volatile components such as fuel prices and tax changes — are trending toward a level closer to 3 percent.
Although key Canadian sectors such as steel, aluminum, autos, and lumber have come under heavy pressure from U.S. tariffs — with broader effects on business investment — Macklem stressed that “the economy is showing overall resilience.”
The governor pointed to recent revisions by Statistics Canada to economic growth figures for 2022, 2023, and 2024 as one possible explanation for that resilience.
He said: “The revisions suggest that the Canadian economy was healthier than we thought before encountering the trade dispute with the United States. Specifically, they indicate that both demand and productive capacity were higher heading into this year.”
He later noted that although several major Canadian industries have been hit by high tariffs, the rest of the economy continues to “operate largely tariff-free” in its dealings with the United States.
He added: “The average tariff imposed on Canada by the United States is among the lowest in the world — around 6 percent.” And he concluded: “We have not yet seen spillover effects reaching the broader economy.”