Soft US Inflation, BoJ Hike Fail: How Global Currencies Moved Last Week
Headline inflation slowed to 2.7% year-on-year in November, while core inflation eased to 2.6%, the lowest since early 2021.
Global currency markets remained largely range-bound last week as a softer-than-expected U.S. inflation print reinforced expectations of future Federal Reserve rate cuts, while the Bank of Japan's widely anticipated rate hike failed to provide lasting support to the yen, according to a weekly FX report by Union Bank of India.
Notably, the US dollar remained mildly softer and range-bound, while in Asia, the Indian rupee stood out as the top performer, appreciating 1.6%.
However, the Indian rupee witnessed heightened volatility during the week and appreciated ~1.27% last week after hitting fresh all-time lows of Rs 91.09 against USD on 16th Dec'25, influenced by weak global cues from the US, major central banks' policy decisions, ongoing trade negotiations, and mixed foreign investor activity.
The US economic data provided mixed signals. Headline inflation slowed to 2.7% year-on-year in November, while core inflation eased to 2.6%, the lowest since early 2021. Labour market data showed modest job gains and a rise in the unemployment rate to 4.6%, though consumer demand remained resilient, supported by stronger retail sales, the report highlighted.
Notably, the Bank of Japan raised its policy rate by 25 basis points to 0.75%, the highest level in three decades, in a unanimous decision. However, the yen weakened after the announcement as real interest rates remained deeply negative and policymakers offered limited clarity on the timing of further tightening. USD/JPY rose toward the 157-158 range, renewing market speculation about potential official intervention if depreciation pressures persist.
In Europe, the European Central Bank held its deposit rate steady at 2% for a fourth consecutive meeting, maintaining a data-dependent stance. Updated projections showed slightly stronger growth and firmer inflation, reinforcing expectations that the ECB is likely to remain on hold through 2026. The euro remained resilient, trading above the 1.17 level against the dollar.
The Bank of England, by contrast, delivered a 25-basis-point rate cut to 3.75% following a narrow 5-4 vote. While policymakers expressed confidence that inflation will approach the 2% target by spring 2026, weaker near-term growth prospects and a cautious policy tone weighed on sterling.
Looking ahead, the UBI report said the market participants remain focused on upcoming U.S. growth and inflation data, including the third estimate of third-quarter GDP and core PCE inflation figures. Analysts expect the dollar to remain range-bound, with future direction hinging on the pace of U.S. disinflation, labour market conditions, and evolving global monetary policy divergence.
(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)
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