The dollar recorded a modest rise against major currencies on Thursday, as markets positioned ahead of central bank decisions in the UK, Europe, and Japan.

Sterling remained under pressure after a sharp and unexpected drop in UK inflation data, which reinforced expectations of an interest rate cut by the Bank of England. In contrast, the Japanese yen pared some of the losses seen in the previous session, supported by expectations that the Bank of Japan will raise interest rates on Friday to their highest level in three decades.

The dollar largely ignored comments from US President Donald Trump, who said the next Federal Reserve chair would strongly believe in cutting interest rates.

The dollar index, which measures the US currency against a basket of peers including the yen and the euro, rose by 0.2% to 98.55 points, after posting a similar gain in the previous session.

The yen slipped by 0.1% to ¥155.85 per dollar, extending a 0.6% decline recorded on Wednesday.

The euro fell by 0.2% to $1.1718, while sterling edged slightly lower to $1.3348, following a 0.4% drop in the previous session.

Interest rate futures markets moved to price in nearly a 100% probability that the Bank of England will cut rates by 25 basis points on Thursday, following weaker-than-expected UK inflation data for November. By contrast, the European Central Bank is widely expected to leave interest rates unchanged at its meeting on Thursday, while signaling limited appetite for rate cuts in the near term.

Mohammad Al-Sarraf, analyst at Danske Bank, said: “We do not expect any new monetary policy signals from the ECB, and we find it difficult to imagine the central bank raising interest rates in 2026, or even 2027.”

He added: “However, a rate cut from the Bank of England now seems all but certain, and we are likely to see further weakness in sterling after the announcement.”

Both the Swedish central bank and the Norwegian central bank kept their key interest rates unchanged on Thursday, in line with expectations. The Swedish krona was steady at 10.899 per euro, while the Norwegian krone edged slightly higher to 11.955 per euro.

In Asia, the Bank of Japan appears poised to raise its short-term interest rate from 0.5% to 0.75%, as rising food costs keep inflation above the bank’s 2% target.

According to Vincent Chung, Fixed Income Portfolio Manager at T Rowe Price in Hong Kong, the Bank of Japan could raise interest rates twice in 2026 in an effort to address persistently negative real interest rates.

Chung said: “There are some expectations that the Bank of Japan may not adopt a hawkish tone in its forward guidance, which could lead to some weakness in the yen, but we believe any such weakness would be temporary.”

In the United States, uncertainty remains over the timing of the Federal Reserve’s next interest rate cut, as well as over the central bank’s ability to maintain its independence, amid Trump’s remarks about a potential successor to Fed Chair Jerome Powell, whose term ends in May.

Federal Reserve Governor Christopher Waller said on Wednesday that the US central bank still has room to cut interest rates as signs of labor market weakness increase. His comments contrasted with those of Atlanta Fed President Raphael Bostic, who said on Tuesday that he did not believe last week’s rate cut by the Fed was justified.

Trump, who has expressed a desire to play a role in Federal Reserve decision-making, said in a White House broadcast that he would soon announce his nominee to succeed Powell.

“I will soon announce our next Federal Reserve chair, someone who believes in cutting interest rates, and by a lot, and mortgage payments will fall further,” Trump said.

All known candidates — White House economic adviser Kevin Hassett, former Fed Governor Kevin Warsh, and Christopher Waller — support the view that interest rates should be lower than current levels, although none has suggested cutting rates to the extent advocated by Trump.

Gold prices retreated in the European market on Thursday, moving into negative territory under pressure from the continued recovery of the US dollar against a basket of major global currencies, ahead of the release of key US inflation data.

Those data are expected to provide strong clues about the future path of Federal Reserve monetary policy in 2026, especially as markets currently price in two US interest rate cuts next year.

Price Overview

Gold prices today: Gold prices fell by around 0.4% to $4,322.23, from an opening level of $4,338.37, after recording an intraday high at $4,343.31.

At Wednesday’s settlement, gold prices rose by 0.8%, resuming gains that had paused the previous day amid correction and profit-taking activity from a two-month high at $4,353.59 per ounce.

US Dollar

The US Dollar Index rose by 0.2% on Thursday, maintaining gains for a second consecutive session, reflecting the continued recovery of the US currency against a basket of global currencies.

This positive performance comes ahead of central bank decisions in Europe and the UK, where European interest rates are expected to remain unchanged, while UK rates are seen being cut by around 25 basis points.

US Interest Rates

Federal Reserve Governor Christopher Waller said the central bank still has room to cut interest rates amid a cooling labor market.

US President Donald Trump said the new Federal Reserve chair will believe in significantly lower interest rates.

Following these comments, CME FedWatch pricing showed that expectations for keeping US interest rates unchanged at the January 2026 meeting declined from 80% to 72%, while expectations for a 25 basis point rate cut rose from 20% to 28%.

Investors are currently pricing in two US interest rate cuts next year, while the Federal Reserve’s own projections point to a single 25 basis point cut.

US Inflation Data

To reassess these expectations, traders are awaiting the release of key US inflation data for November later today, which are expected to influence the Federal Reserve’s monetary policy path in 2026.

Gold Outlook

Kelvin Wong, Market Analyst for Asia Pacific at OANDA, said that Waller’s comments suggest the Federal Reserve may maintain the current rate-cut cycle, which supports both gold and silver at present. Wong added that some profit-taking could emerge at current levels.

SPDR Fund

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed ETF, increased by about 0.85 metric tons on Wednesday, lifting total holdings to 1,052.54 metric tons.

The British pound retreated in European trading on Thursday against a basket of global currencies, extending its losses for the second consecutive day against the US dollar and moving away from a two-month high, amid continued correction and profit-taking activity, in addition to pressure from the stronger US currency ahead of the release of key US inflation data for November.

UK government data showed that British inflation slipped to its lowest level in eight months in November, easing inflationary pressures on Bank of England policymakers. This comes as markets await the central bank’s decision later today, with full expectations of a fresh cut in UK interest rates.

Price Overview

• British pound exchange rate today: the pound fell against the dollar by 0.1% to $1.3362, from an opening level of $1.3376, recording a high of $1.3382.

• The pound lost 0.35% against the dollar on Wednesday, marking its first loss in three days, due to correction and profit-taking, after posting a two-month high the previous day at $1.3456.

• Beyond profit-taking sales, the pound also weakened following the release of UK inflation data that were less aggressive than market expectations.

US Dollar

The US dollar index rose by 0.1% on Thursday, maintaining its gains for the second consecutive session, reflecting continued recovery in the US currency against a basket of global currencies.

This positive performance comes ahead of central bank decisions in Europe and Britain, where European interest rates are expected to remain unchanged, while UK interest rates are expected to be cut by about 25 basis points.

Later today, key US inflation data for November will be released, which are expected to provide strong clues about the path of Federal Reserve interest rates in 2026.

The dollar also welcomed remarks by US President Donald Trump, who said that the next Federal Reserve chair would believe in cutting interest rates “significantly.”

UK Inflation

The Office for National Statistics said on Wednesday that headline UK inflation rose by 3.2% year-on-year in November, the slowest pace since March, below market expectations of a 3.5% increase, compared with a 3.6% reading in October.

Core inflation rose by 3.2% in November, also below market expectations of 3.4%, compared with a 3.4% reading in October.

The sharp slowdown in UK prices reduces inflationary pressures on Bank of England policymakers and strongly reinforces expectations for continued monetary easing and further UK interest rate cuts.

UK Interest Rates

Following the data, market pricing for a 25 basis point rate cut by the Bank of England at today’s meeting rose from 90% to 100%.

Bank of England

The Bank of England is set to conclude later today its final monetary policy meeting of 2025, where UK interest rates are expected to be cut by about 25 basis points to a range of 3.75%, the lowest level since December 2022, marking the fourth UK monetary easing move this year.

The interest rate decision, policy statement, and the voting outcome of the Monetary Policy Committee will be released at 12:00 GMT.

Bank of England Governor Andrew Bailey will speak at a press conference at 12:30 GMT, commenting on the outcome of the policy meeting, inflation developments, and the outlook for interest rates.

Outlook for the British Pound

At Economies.com, we expect that if the Bank of England and Andrew Bailey deliver less aggressive comments than markets anticipate, the probability of multiple UK interest rate cuts in 2026 will increase, leading to further downside pressure on the British pound.

The Japanese yen retreated in Asian trading on Thursday against a basket of major and minor currencies, extending its losses for the second consecutive day against the US dollar, moving away from a two-week high amid ongoing correction and profit-taking activity, in addition to pressure from the stronger US currency ahead of the release of key US inflation data for November.

Later today, the final monetary policy meeting of the Bank of Japan for 2025 will begin, with decisions set to be announced on Friday. Markets widely expect a 25 basis point hike in Japanese interest rates, marking the second tightening move this year.

Price Overview

• Japanese yen exchange rate today: the dollar rose against the yen by 0.1% to ¥155.81, from an opening level of ¥155.64, recording a low of ¥155.42.

• The yen ended Wednesday’s session down 0.6% against the dollar, marking its first loss in three days, due to correction and profit-taking from a two-week high at ¥154.39.

US Dollar

The US dollar index rose by 0.1% on Thursday, maintaining its gains for the second consecutive session, reflecting the continued recovery of the US currency against a basket of global currencies.

This positive performance comes ahead of central bank decisions in Europe and Britain, where European interest rates are expected to remain unchanged, while UK interest rates are expected to be cut by about 25 basis points.

Later today, key US inflation data for November will be released, which are expected to provide strong clues about the path of Federal Reserve interest rates in 2026.

The dollar also welcomed remarks by US President Donald Trump, who said that the next Federal Reserve chair would believe in cutting interest rates “significantly.”

Bank of Japan

Later today, the Bank of Japan begins its policy meeting to discuss appropriate monetary policy for developments in the world’s fourth-largest economy, amid strong expectations of a 25 basis point rate hike to a range of 0.75%, the highest level since 2008 during the global financial crisis.

Markets are closely watching what Governor Kazuo Ueda will say about the direction of monetary policy in 2026, at a time when expectations are rising that the Japanese government may resort to further expansionary fiscal measures, adding complexity to the Bank of Japan’s policy outlook.

Japanese Interest Rates

• Following recent inflation and wage data in Japan, market pricing for the probability of a quarter-percentage-point rate hike at this week’s meeting has stabilized above 90%.

• Bank of Japan Governor Kazuo Ueda recently offered more optimistic expectations for the Japanese economy, saying the central bank would assess the pros and cons of raising interest rates at its upcoming policy meeting.

• Three government officials told Reuters that the Bank of Japan is likely to raise interest rates in December.

Views and Analysis

Analysts at Société Générale said they expect the Bank of Japan to raise interest rates to 1% by July next year, while also expecting the bank to deliver a rate hike when it announces its policy decision on Friday.

Thierry Wizman, global head of foreign exchange and interest rate strategy at Macquarie, said the Bank of Japan’s move comes in response to inflationary pressures linked to a weak yen, as well as a new political willingness to address what he described as a “cost-of-living crisis” in Japan.

Wizman added that they are more optimistic on the Japanese yen than on other currencies, and expect the dollar/yen pair to move toward 146 by the end of 2026.