USD Finds Ground After Mixed Economic Signals; Euro Weakens Against the Dollar

The dollar index climbed modestly on Thursday, advancing +0.05% as the greenback recovered from initial weakness despite conflicting market signals. The rebound came as EUR/USD retreated notably, declining -0.14%, signaling shifting sentiment in the euro till dollar exchange rate as traders reassessed central bank trajectories.

Economic Data Sends Mixed Signals, Testing Dollar Support

The day opened with headwinds for the dollar as November’s inflation reading disappointed expectations. US Nov CPI came in at +2.7% year-over-year, falling short of the anticipated +3.1%, while core CPI printed even softer at +2.6% versus forecasts of +3.0%—marking the slowest pace in 4.5 years. These softer-than-expected readings fueled speculation about an extended Federal Reserve easing cycle, initially pressuring the greenback.

However, the employment picture provided some ballast. Weekly jobless claims fell by 13,000 to 224,000, landing near consensus expectations of 225,000 and providing a rare bright spot in the economic data flow. Yet this support proved temporary as the Philadelphia Fed’s December business outlook survey delivered an unexpected shock, tumbling 8.5 points to -10.2 against expectations of a rise to 2.3. This deterioration raised fresh questions about economic momentum heading into 2026.

Fed Policy Divergence Looms Over Dollar Strength

Underlying the dollar’s struggle is the widening debate over Federal Reserve direction. Markets are currently pricing in just a 27% probability of a 25 basis point rate cut at the January 27-28 FOMC meeting, yet the mere possibility weighs on the dollar’s appeal. More significantly, reports suggest President Trump intends to name a dovish-leaning Federal Reserve Chair—with Kevin Hassett, director of the National Economic Council, widely seen as the leading candidate. The prospect of a more accommodative Fed policy stance into 2026 creates a persistent headwind for the dollar, as markets front-run potential interest rate cuts.

Adding to dollar pressure, the Federal Reserve has ramped up liquidity operations, having commenced $40 billion monthly purchases of Treasury bills starting last Friday. This expansion of the monetary base runs counter to currency strength, as abundant liquidity typically weakens demand for safe-haven dollars.

ECB Signals End of Cutting Cycle; Euro Stabilizes Despite Fiscal Clouds

The euro till dollar dynamic shifted as the ECB held rates steady as expected, maintaining the deposit facility rate at 2.00%. Officials hinted that the interest rate cutting cycle may be concluding, with focus shifting to growth and inflation outlooks. ECB President Christine Lagarde struck a confident tone, characterizing the Eurozone economy as “resilient,” which initially buoyed the currency.

However, these supportive comments were offset by mounting fiscal concerns. Germany announced plans to increase federal debt sales by nearly 20% next year, reaching a record 512 billion euros ($601 billion) to fund expanded government spending. This fiscal expansion, rather than inspiring confidence, weighed on the euro as traders recognized mounting debt pressures across the currency bloc. Swaps currently price just a 1% chance of a 25 basis point ECB rate cut at February’s policy meeting, suggesting rate stability ahead.

Yen Gathers Strength Amid BOJ Rate Hike Expectations

USD/JPY declined -0.08% on Thursday as the yen attracted flows ahead of anticipated Bank of Japan tightening. Markets are discounting a 96% probability of a 25 basis point rate increase at Friday’s BOJ policy meeting—a move that would support the yen despite headwinds from weakening Treasury yields. Japanese fiscal concerns—specifically a reported record budget exceeding 120 trillion yen ($775 billion) for fiscal 2026—are capping the yen’s upside momentum.

Precious Metals Pressured but Finding Pockets of Support

Gold and silver traded lower on Thursday as shifting central bank sentiment and equity market strength reduced their safe-haven premium. February COMEX gold declined 9.40 points (-0.21%), while March COMEX silver fell 1.682 points (-2.51%). Hawkish commentary from ECB President Lagarde and BOE Governor Bailey—who noted the bar for further rate cuts has moved higher—weighed on sentiment, as did the BOJ’s likely upcoming tightening.

Yet precious metals found footing from multiple sources. The Bank of England’s 25 basis point rate cut reinforced safe-haven demand, while dovish US economic data—particularly the softer CPI reading—supported the complex. China’s People’s Bank added 30,000 ounces to reserves in November, marking the thirteenth consecutive month of central bank gold accumulation, with bullion reserves now standing at 74.1 million troy ounces. Global central banks collectively purchased 220 metric tons in Q3, up 28% from Q2, underscoring structural demand.

Silver drew additional support from inventory tightness. Shanghai Futures Exchange-linked warehouse inventories fell to 519,000 kilograms on November 21—a 10-year low—reflecting supply constraints that may limit downside. Fund flows have also rebounded, with silver ETF holdings rising to a near 3.5-year high on Tuesday after earlier liquidation pressures.

The Macro Backdrop: Uncertainty Ahead

Looking forward, the dollar’s trajectory hinges on Fed policy clarity and global growth expectations. Tariff uncertainty under the incoming administration, alongside geopolitical tensions spanning Ukraine, the Middle East, and Venezuela, continue to support precious metals as portfolio hedges. The prospect of an easier Fed stance in 2026 remains a persistent headwind for dollar strength, even as recent economic data offers limited support for aggressive near-term cuts.