New Developments in the Forex Market: Divergent Policy Stances
Entering late December, the global foreign exchange market shows clear signs of central bank policy divergence. The US dollar index rose 0.33% for the week, but the performance of non-US currencies varies significantly— the euro fell 0.23%, the yen declined by 1.28%, the Australian dollar dropped 0.65%, and the British pound slightly increased by 0.03%. These fluctuations reflect the markedly different attitudes of the three major central banks toward monetary policy.
European Central Bank Holds Steady, Euro Gains Anticipation Emerges
The European Central Bank (ECB) maintained its interest rate policy as expected, with President Lagarde’s speech not as hawkish as market expectations. Meanwhile, US economic data presents mixed signals—November non-farm payrolls showed some bright spots, but the Consumer Price Index (CPI) was below expectations. Large investment banks like Morgan Stanley and Barclays pointed out that these data contain obvious technical biases, making it difficult to accurately reflect economic trends.
Currently, the market expects the Federal Reserve to cut interest rates twice by 2026, with a 66.5% probability of a rate cut in April. In contrast, the ECB maintains a hawkish stance, creating a policy mismatch that favors euro appreciation. Danske Bank’s view is noteworthy: after adjusting for inflation, the real interest rate differential between the US and Europe will narrow, supporting a stronger euro against the dollar. Additionally, the recovery of European assets, hedging against dollar depreciation risks, and declining confidence in US financial institutions could further push the euro higher.
From a technical perspective, EUR/USD is above multiple moving averages, with short-term upside breakout potential. The previous high near 1.18 is an important resistance level. If a pullback occurs, the 100-day moving average around 1.165 could serve as support.
Yen Dilemma: “Gradual Rate Hike” Fails to Halt Depreciation
Although the Bank of Japan (BOJ) raised interest rates by 25 basis points as expected, Governor Ueda’s dovish comments disappointed the market. More critically, the new cabinet approved a fiscal stimulus package totaling 18.3 trillion yen, which directly offsets the tightening effect of the rate hike, leading to a 1.28% weekly increase in USD/JPY, approaching the 158 level.
Market expectations for BOJ policy remain pessimistic. Sumitomo Mitsui Banking Corporation expects the next rate hike to be in October 2026, believing the yen will depreciate to 162 in the short term. However, JPMorgan warns that if the yen depreciates beyond 160, it will trigger intervention conditions by the Japanese government, significantly increasing the likelihood of policy intervention to stabilize the market.
In contrast, Nomura Securities remains optimistic, believing that under the backdrop of Fed rate cuts, the US dollar will weaken long-term, and the yen will not continue to depreciate unilaterally. They forecast the exchange rate will rise to 155 in the first quarter of 2026.
On the technical side, USD/JPY has broken above the 21-day moving average, with MACD indicating a buy signal. If it breaks through resistance at 158, the upward space will open; if it faces resistance below 158, support is expected around 154.
Global Exchange Rate Landscape: Euro-RMB Moves Against the Trend
Notably, amid a slight rise in the US dollar index, the euro to Chinese yuan (EUR/CNY) exchange rate shows a unique trend, reflecting the relative stability of European and Chinese economic fundamentals. Unlike the unilateral depreciation dilemma of the yen, the EUR/CNY movement is more driven by policy coordination and growth expectations of the two major economies.
Key Focus This Week
US Q3 GDP data and geopolitical developments will be the focus this week. Stronger-than-expected GDP will boost the dollar and pressure EUR/USD; conversely, weaker data will benefit the euro. In Japan, Ueda’s speeches and signals of verbal intervention by authorities are equally critical. Any hawkish statements or escalation of intervention will weigh on USD/JPY.
Divergence in global central bank policies has become a certainty. Investors need to closely monitor economic data and policy statements to seize opportunities in this volatile forex market.
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Central bank policy divergence intensifies! The triangular currency game among the US, Japan, and Europe heats up
New Developments in the Forex Market: Divergent Policy Stances
Entering late December, the global foreign exchange market shows clear signs of central bank policy divergence. The US dollar index rose 0.33% for the week, but the performance of non-US currencies varies significantly— the euro fell 0.23%, the yen declined by 1.28%, the Australian dollar dropped 0.65%, and the British pound slightly increased by 0.03%. These fluctuations reflect the markedly different attitudes of the three major central banks toward monetary policy.
European Central Bank Holds Steady, Euro Gains Anticipation Emerges
The European Central Bank (ECB) maintained its interest rate policy as expected, with President Lagarde’s speech not as hawkish as market expectations. Meanwhile, US economic data presents mixed signals—November non-farm payrolls showed some bright spots, but the Consumer Price Index (CPI) was below expectations. Large investment banks like Morgan Stanley and Barclays pointed out that these data contain obvious technical biases, making it difficult to accurately reflect economic trends.
Currently, the market expects the Federal Reserve to cut interest rates twice by 2026, with a 66.5% probability of a rate cut in April. In contrast, the ECB maintains a hawkish stance, creating a policy mismatch that favors euro appreciation. Danske Bank’s view is noteworthy: after adjusting for inflation, the real interest rate differential between the US and Europe will narrow, supporting a stronger euro against the dollar. Additionally, the recovery of European assets, hedging against dollar depreciation risks, and declining confidence in US financial institutions could further push the euro higher.
From a technical perspective, EUR/USD is above multiple moving averages, with short-term upside breakout potential. The previous high near 1.18 is an important resistance level. If a pullback occurs, the 100-day moving average around 1.165 could serve as support.
Yen Dilemma: “Gradual Rate Hike” Fails to Halt Depreciation
Although the Bank of Japan (BOJ) raised interest rates by 25 basis points as expected, Governor Ueda’s dovish comments disappointed the market. More critically, the new cabinet approved a fiscal stimulus package totaling 18.3 trillion yen, which directly offsets the tightening effect of the rate hike, leading to a 1.28% weekly increase in USD/JPY, approaching the 158 level.
Market expectations for BOJ policy remain pessimistic. Sumitomo Mitsui Banking Corporation expects the next rate hike to be in October 2026, believing the yen will depreciate to 162 in the short term. However, JPMorgan warns that if the yen depreciates beyond 160, it will trigger intervention conditions by the Japanese government, significantly increasing the likelihood of policy intervention to stabilize the market.
In contrast, Nomura Securities remains optimistic, believing that under the backdrop of Fed rate cuts, the US dollar will weaken long-term, and the yen will not continue to depreciate unilaterally. They forecast the exchange rate will rise to 155 in the first quarter of 2026.
On the technical side, USD/JPY has broken above the 21-day moving average, with MACD indicating a buy signal. If it breaks through resistance at 158, the upward space will open; if it faces resistance below 158, support is expected around 154.
Global Exchange Rate Landscape: Euro-RMB Moves Against the Trend
Notably, amid a slight rise in the US dollar index, the euro to Chinese yuan (EUR/CNY) exchange rate shows a unique trend, reflecting the relative stability of European and Chinese economic fundamentals. Unlike the unilateral depreciation dilemma of the yen, the EUR/CNY movement is more driven by policy coordination and growth expectations of the two major economies.
Key Focus This Week
US Q3 GDP data and geopolitical developments will be the focus this week. Stronger-than-expected GDP will boost the dollar and pressure EUR/USD; conversely, weaker data will benefit the euro. In Japan, Ueda’s speeches and signals of verbal intervention by authorities are equally critical. Any hawkish statements or escalation of intervention will weigh on USD/JPY.
Divergence in global central bank policies has become a certainty. Investors need to closely monitor economic data and policy statements to seize opportunities in this volatile forex market.