The US dollar held steady on Wednesday near its lowest levels since early October, after data showed the labor market remains weak, keeping investors cautious about the timing of the Federal Reserve’s next interest-rate cut.

The euro traded at $1.1751 in Asian hours, hovering near a 12-week high reached in the previous session, ahead of the European Central Bank’s policy decision on Thursday, where the bank is expected to keep interest rates unchanged.

The dollar index, which tracks the US currency against six major peers, stood at 98.193, remaining close to its lowest level since October 3, recorded on Tuesday. The index is down 9.5% so far this year and is on track for its biggest annual decline since 2017.

Although the US economy added 64,000 jobs in November, beating economists’ expectations in a Reuters poll, the unemployment rate rose to 4.6% last month. The data were distorted by the effects of a 43-day government shutdown.

Still, investors and analysts were unconvinced that the jobs report materially altered the outlook for monetary policy, as markets now await inflation data due on Thursday.

Tony Sycamore, market analyst at IG, said: “Taken together, the data paint a picture of very weak jobs growth. While it’s not weak enough to put a January rate cut back on the table, the continued rise in unemployment keeps the door open to a potential cut at the March FOMC meeting, if upcoming employment reports show further deterioration.”

The Federal Reserve cut interest rates as expected last week but signaled that borrowing costs are unlikely to fall again in the near term, projecting only one rate cut in 2026. Markets, however, are currently pricing in two cuts next year, even as futures pricing suggests a January cut remains unlikely.

Thomas Matthews, head of Asia-Pacific markets at Capital Economics, said: “If CPI data come in as expected later this week, the Fed won’t feel any pressure to ease policy in the next few meetings. Even March may be a little too early to expect a rate cut.”

Central Bank Meetings in Focus

Central banks are set to close out the year with a series of key policy decisions in the coming days. Alongside the ECB, the Bank of England is expected to cut interest rates on Thursday in a close vote, while the Bank of Japan is widely expected to raise rates on Friday to their highest level in three decades.

The British pound was steady at $1.3424, slightly below a two-month high hit on Tuesday, after data showed UK unemployment rose to its highest level since early 2021, while private-sector wage growth slowed to its weakest pace in nearly five years. The figures, released ahead of Chancellor Rachel Reeves’ annual budget last month, reinforced expectations of a rate cut.

Meanwhile, the Japanese yen edged slightly higher to 154.56 per dollar, nearing a two-week high ahead of the Bank of Japan’s meeting. With a rate hike widely expected, markets will focus on forward guidance and the policy path for next year.

Thierry Wizman, global foreign exchange and rates strategist at Macquarie, said the Bank of Japan’s move reflects inflationary pressures linked to a weaker yen, as well as renewed political willingness to address what he described as Japan’s “cost-of-living crisis.”

He added: “We are more constructive on the Japanese yen than on the British pound, and we expect USD/JPY to move toward 146 by the end of 2026. We also see GBP/USD remaining close to the 1.33–1.34 range throughout 2026.”

Gold prices rose in the European market on Wednesday, resuming gains that were temporarily interrupted yesterday, and moved higher toward a two-month high, supported by increased buying of the metal as one of the best alternative opportunities, as weak inflation data continue to emerge across major economies, boosting expectations of continued global interest rate cuts.

Those gains were capped by the US dollar entering a short-term recovery cycle from two-and-a-half-month lows, as markets await the release of key US inflation data on Thursday.

Price Overview

• Gold prices today: Gold rose by about 0.95% to $4,342.54, from an opening level of $4,302.57, and recorded a low of $4,301.63.

• At Tuesday’s settlement, gold prices fell by 0.1%, marking the first loss in six sessions, amid correction and profit-taking operations from a two-month high at $4,353.59 per ounce.

Global Interest Rates

Weak inflation data continue to emerge across major economies, with Canadian inflation coming in below market expectations and UK inflation falling to its lowest level in eight months, highlighting a continued easing of inflationary pressures on major global central banks, and reinforcing expectations that these banks will continue cutting interest rates in 2026.

The Bank of England is set on Thursday to cut UK interest rates by 25 basis points to a range of 3.75%, the lowest level since December 2022, in the fourth easing step this year.

The US Dollar

The dollar index rose on Wednesday by around 0.45%, as part of a recovery from a two-and-a-half-month low, on track to post its first gain in three sessions, reflecting a broad rebound in the US currency against a basket of global currencies.

Beyond buying from low levels, the recovery in the US dollar comes amid easing inflationary pressures on major global central banks, in addition to the rise in the US unemployment rate, which reinforces expectations of interest rate cuts by the Federal Reserve in 2026.

US Interest Rates

• According to the CME FedWatch tool, pricing for keeping US interest rates unchanged at the January 2026 meeting currently stands at 78%, while pricing for a 25-basis-point rate cut stands at 22%.

• Investors are currently pricing in two US interest rate cuts over the course of next year, while Federal Reserve projections point to one cut of 25 basis points.

• To reprice these probabilities, investors are closely monitoring the release of further US economic data, along with comments from Federal Reserve officials.

• Key US inflation data for November will be released on Thursday, providing further strong evidence on the path of US monetary policy in 2026.

Gold Outlook

Bob Haberkorn, senior market strategist at RJO Futures, said that US labor market data give the Federal Reserve more reasons to cut interest rates, and if rates are cut, this would be a positive signal for gold — this is how the market is currently interpreting it.

SPDR

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged on Tuesday, keeping the total at 1,051.69 metric tons.

The British pound fell in the European market on Wednesday against a basket of global currencies, retreating from a two-month high against the US dollar, amid corrective moves and profit-taking, alongside attempts by the US currency to recover from low levels.

The pullback comes as investors refrain from building new long positions ahead of the release of key UK inflation data, which are expected to play a decisive role in shaping the Bank of England’s policy decision due on Thursday.

Current expectations point to a 25 basis point cut in UK interest rates to a range of 3.75%, the lowest level since December 2022, marking the fourth monetary easing step this year.

Price overview

• British pound exchange rate today: The pound fell against the dollar by 0.3% to 1.3380, from an opening level of 1.3423, while recording a session high at 1.3427.

• On Tuesday, the pound gained around 0.35% against the dollar, posting a second consecutive daily gain and reaching a two-month high at 1.3456, supported by strong UK economic data on wage growth and industrial and commercial activity.

US dollar

The dollar index rose by more than 0.2% on Wednesday, rebounding from a two-and-a-half-month low and heading toward its first gain in three sessions, reflecting a recovery in the US currency against a basket of global currencies.

Beyond bargain buying from low levels, the dollar’s rebound comes ahead of the release of further key US economic data, which are expected to provide clearer signals on the Federal Reserve’s interest rate path in 2026.

UK interest rates

• The Bank of England meets on Thursday to discuss the appropriate monetary policy stance in light of recent economic developments in the UK, particularly as concerns over financial stability have eased following the announcement of a relatively moderate autumn budget.

• The vote to hold interest rates steady at the Bank of England’s November meeting showed a growing inclination among policymakers toward delivering a fourth monetary easing step this year.

• Market pricing for a 25 basis point cut in UK interest rates at this week’s meeting remains stable above 90%.

• Monetary updates and comments from the Bank of England governor are expected to provide strong guidance on the path of UK interest rates in 2026.

UK inflation data

In order to reprice current interest rate expectations, investors are awaiting the release of the UK’s main inflation data for November later today, which are expected to have a significant impact on the Bank of England’s policy outlook.

At 07:00 GMT, headline consumer price inflation is expected to rise by 3.5% year-on-year in November, down from 3.6% in October, while core CPI is expected to increase by 3.4% year-on-year, unchanged from the previous reading.

Outlook for the British pound

We expect here at Economies.com that if UK inflation data come in below market expectations, the case for a UK interest rate cut will be reinforced, leading to further downside pressure on the British pound’s exchange rate.

The Japanese yen fell in the Asian market on Wednesday against a basket of major and minor currencies, retreating from a two-week high against the US dollar, amid corrective moves and profit-taking, alongside attempts by the US currency to recover from recent lows.

Markets are now looking ahead to the final monetary policy meeting of the Bank of Japan for 2025, which begins on Thursday, with the policy decision due on Friday. Expectations broadly point to a 25 basis point increase in Japanese interest rates, marking the second monetary tightening step this year.

Price overview

• Japanese yen exchange rate today: The dollar rose against the yen by 0.3% to 155.15, from an opening level of 154.69, while the session low was recorded at 154.51.

• The yen ended Tuesday’s trading up 0.35% against the dollar, posting a second consecutive daily gain and touching a two-week high at 154.39, amid ongoing unwinding of yen carry trades.

US dollar

The dollar index rose by 0.2% on Wednesday, rebounding from a two-and-a-half-month low and on track for its first gain in three sessions, reflecting a recovery in the US currency against a basket of global currencies.

Beyond bargain buying from low levels, the dollar’s rebound comes as investors await further key US economic data, which are expected to provide clearer signals on the Federal Reserve’s interest rate path in 2026.

Bank of Japan

The Bank of Japan’s policy meeting begins on Thursday, as officials assess the appropriate monetary stance for the world’s fourth-largest economy, amid strong expectations of a 25 basis point rate hike to around 0.75%, the highest level since 2008 during the global financial crisis.

Markets will closely watch Governor Kazuo Ueda’s comments on the outlook for monetary policy in 2026, at a time when expectations are rising that the Japanese government may resort to additional fiscal stimulus, adding further complexity to the policy landscape facing the central bank.

Japanese interest rates

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

• Bank of Japan Governor Kazuo Ueda has recently delivered a more optimistic assessment of the Japanese economy, stating that the central bank will weigh 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 Societe Generale said they expect the Bank of Japan to raise interest rates to 1% by July next year, while also anticipating a rate hike at Friday’s policy decision.

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

Wizman added that Macquarie is more constructive on the Japanese yen than on other currencies, and expects the dollar/yen pair to move toward the 146 level by the end of 2026.