The Japanese yen fell to its weakest level in a year and a half against the US dollar on Wednesday, amid speculation that a potential early election could pave the way for fresh fiscal stimulus, prompting traders to reassess the likelihood of official intervention to support the currency.

The yen slipped as much as 0.2% to 159.45 per dollar earlier in the session, its lowest level since July 2024, before paring losses in volatile trading. The dollar later fell 0.3% to 158.66 yen by mid-European trading.

The Japanese currency has continued to weaken against most major counterparts, from the euro to the Mexican peso, over recent months, as investor concerns mount over Prime Minister Sanae Takaichi’s plans for expansive fiscal spending. Those concerns are seen as intensifying if an election is called next month and delivers a comfortable parliamentary majority.

With the yen approaching the 160-per-dollar level, market participants are increasingly alert to the risk of intervention by Japanese authorities. Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets, said the issue is less about the absolute level of the yen and more about the speed of its moves.

Intense focus on dollar/yen

Stretch said: “Clearly, the focus is on dollar/yen, but it’s also important to monitor the broader yen complex, as some crosses have moved sharply — euro/yen, for example, has reached record levels.”

He added: “Dollar/yen remains the primary focal point, but it is not the whole story. At this stage, the market appears to be watching how far moves can extend before intervention is seen as imminent or plausible.”

Over the past two months alone, the yen has lost around 3% against the dollar. Ahead of previous intervention episodes, such as in April and July 2024, the currency had fallen by close to 6% over a similar timeframe.

Japan’s Finance Minister Satsuki Katayama issued a fresh verbal warning on Wednesday, stating that authorities would take “appropriate action against excessive moves in the foreign exchange market, without ruling out any options.”

Dollar steadies after inflation data

The dollar held near its highest level in a month against a basket of major currencies following the release of US consumer inflation data on Tuesday, which largely matched expectations. The figures reinforced bets that the Federal Reserve will keep interest rates unchanged at its upcoming meeting, despite unprecedented pressure from the White House to cut rates.

The dollar had dropped sharply on Monday after US President Donald Trump threatened to pursue criminal charges against Federal Reserve Chair Jerome Powell, before central bank governors and senior Wall Street executives lined up to back Powell on Tuesday.

Brian Martin, head of G3 economics at ANZ in London, said: “There is a loud chorus of politicians, former Fed chairs, and other officials stressing that Federal Reserve independence is sacrosanct and should not be undermined.”

Focus on Supreme Court tariff ruling

Investors are also closely watching the possibility of a ruling from the US Supreme Court on the legality of Trump’s emergency tariffs.

ING analysts wrote in a research note: “The court may uphold the tariffs, in which case the market will move on. We expect them to be struck down, but even then the market is likely to move on.”

They added: “US bond markets continue to show a remarkable ability to look through much of this noise.”

Against the offshore Chinese yuan traded in Hong Kong, the dollar was steady at 6.9752 after December trade data showed the world’s second-largest economy ended the year with a record surplus of nearly $1.2 trillion.

In other currency markets, the euro was steady at $1.1646, while sterling rose 0.2% to $1.3447.

Silver prices rose in European trading on Wednesday, extending gains for a fourth consecutive session and continuing to shatter record levels, after breaking above the $90 per ounce threshold for the first time ever, supported by strong demand from retail investors and the current decline in the US dollar against a basket of currencies.

Headline inflation data released on Tuesday in Washington renewed hopes that the Federal Reserve could cut interest rates twice over the course of this year. To reassess these expectations, investors are awaiting the release of further key US economic data.

Price overview

• Silver prices today: silver prices jumped by 5.3% to $91.56, marking an all-time high, from an opening level of $86.94, while the session low was recorded at $86.84.

• At settlement on Tuesday, silver prices rose by 2.1%, recording a third consecutive daily gain, amid strong demand for precious metals as safe havens.

US dollar

The US dollar index fell by more than 0.1% on Wednesday, reflecting a decline in the US currency against a basket of global currencies, amid cautious conditions dominating foreign exchange trading.

Traders are paying close attention to the issue of Federal Reserve independence, following threats by the US Department of Justice to bring criminal charges against Chair Jerome Powell over alleged irregularities related to the central bank building renovation project.

In an unprecedented show of solidarity, global central bank officials issued a coordinated statement on Tuesday expressing full support for Powell and for protecting the independence of monetary decision-making in the United States.

These tensions come as markets await President Donald Trump’s announcement in the coming weeks of his nominee to succeed Powell, with Powell’s official term set to expire in May, increasing uncertainty across global financial markets.

US interest rates

• Core US consumer prices rose 0.2% month-on-month and 2.6% year-on-year in December, below analysts’ expectations of increases of 0.3% and 2.7%, respectively.

• US President Donald Trump welcomed the inflation figures and renewed his call for Federal Reserve Chair Jerome Powell to cut interest rates “meaningfully.”

• According to the CME FedWatch tool, the probability of keeping US interest rates unchanged at the January 2026 meeting is currently priced at 97%, while the probability of a 25-basis-point rate cut stands at 3%.

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

• To reprice these expectations, investors are later awaiting further key US data, including producer prices and retail sales for December.

Silver outlook

Brian Lan, managing director of Singapore-based trading firm GoldSilver Central, said that the next major round number for silver is $100, adding that large double-digit percentage gains for the metal look likely this year.

Gold prices rose in European trading on Wednesday, resuming gains that were briefly interrupted yesterday, to register a new record high, as they move toward testing the $4,700 per ounce level for the first time ever, supported by the current decline in the US dollar.

US President Donald Trump welcomed the inflation data and renewed his call for Federal Reserve Chair Jerome Powell to cut interest rates “meaningfully.” Markets are awaiting the release of further key US economic data later today.

Price overview

• Gold prices today: gold prices rose about 1.2% to $4,639.73, marking an all-time high, from an opening level of $4,586.33, while the session low was also recorded at $4,586.33.

• At settlement on Tuesday, the precious metal lost about 0.3%, marking its first loss in four sessions, due to corrective moves and profit-taking.

US dollar

The US dollar index fell by more than 0.1% on Wednesday, reflecting a decline in the US currency against a basket of global currencies, amid cautious conditions dominating foreign exchange trading.

Traders are paying close attention to the issue of Federal Reserve independence, following threats by the US Department of Justice to bring criminal charges against Chair Jerome Powell over alleged irregularities related to the central bank building renovation project.

In an unprecedented show of solidarity, global central bank officials issued a coordinated statement on Tuesday expressing full support for Powell and for protecting the independence of monetary decision-making in the United States.

These tensions come as markets await President Donald Trump’s announcement in the coming weeks of his nominee to succeed Powell, with Powell’s official term set to expire in May, increasing uncertainty across global financial markets.

US interest rates

• Core US consumer prices rose 0.2% month-on-month and 2.6% year-on-year in December, below analysts’ expectations of increases of 0.3% and 2.7%, respectively.

• US President Donald Trump welcomed the inflation figures and renewed his call for Federal Reserve Chair Jerome Powell to cut interest rates “meaningfully.”

• According to the CME FedWatch tool, the probability of keeping US interest rates unchanged at the January 2026 meeting is currently priced at 97%, while the probability of a 25-basis-point rate cut stands at 3%.

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

• To reprice these expectations, investors are later awaiting further key US data, including producer prices and retail sales for December.

Gold outlook

Brian Lan, managing director of Singapore-based trading firm GoldSilver Central, said that the data were positive, noting that inflation declined and the unemployment rate also fell in the United States, and that these indicators helped drive precious metals prices higher.

SPDR

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed ETF, increased by about 3.43 metric tons on Tuesday, marking a second consecutive daily increase, bringing total holdings to 1,074.23 metric tons, the highest level since June 17, 2022.

The euro rose in European trading on Wednesday against a basket of global currencies, resuming recovery attempts against the US dollar, supported by relatively active buying from multi-week low levels, amid cautious conditions dominating foreign exchange markets.

Investors are closely monitoring dramatic developments surrounding the independence of the Federal Reserve, following the unprecedented move to open a criminal investigation into Fed Chair Jerome Powell.

Attention is now turning to a batch of US economic data due later today, which is expected to provide strong signals on the future path of interest rates over the course of this year, amid heightened uncertainty prevailing across global markets.

With inflationary pressures easing for policymakers at the European Central Bank, expectations have revived for at least one European interest rate cut this year. To reassess these expectations, investors are awaiting further key economic data from the euro area.

Price overview

• Euro exchange rate today: the euro rose 0.1% against the dollar to 1.1649, from an opening level of 1.1641, with a session low at 1.1636.

• The euro ended Tuesday’s session down 0.2% against the dollar, resuming losses that had paused the previous day during a recovery from a four-week low at 1.1618.

US dollar

The US dollar index fell about 0.1% on Wednesday, reflecting a pause in the recent rise of the US currency against a basket of major and minor currencies, amid cautious trading conditions in foreign exchange markets.

Traders are paying close attention to the issue of Federal Reserve independence, following threats by the US Department of Justice to bring criminal charges against Chair Jerome Powell over alleged irregularities related to a central bank building renovation project.

In an unprecedented show of solidarity, global central bank officials issued a coordinated statement on Tuesday expressing full support for Powell and for protecting the independence of monetary decision-making in the United States.

These tensions come as markets await an announcement by President Donald Trump in the coming weeks regarding his nominee to succeed Powell, with Powell’s term set to expire in May, adding to uncertainty in global financial markets.

Recent consumer price data released on Tuesday were seen as potentially giving the Federal Reserve more room to cut interest rates, as policymakers seek to balance concerns over persistent price pressures with signs of weakness in the labor market.

To reassess these expectations, investors are later awaiting key US economic data, including producer prices and retail sales for December.

European interest rates

• Data released last week showed a slowdown in headline inflation across Europe in December, pointing to easing inflationary pressures on the European Central Bank.

• Following these figures, money market pricing for a 25-basis-point rate cut by the ECB in February rose from 10% to 25%.

• Traders adjusted expectations from keeping rates unchanged throughout the year to anticipating at least one 25-basis-point cut.

• To further reprice these expectations, investors are awaiting additional euro area economic data on inflation, unemployment, and wages.