The pre-holiday week proved to be exceptionally volatile for financial markets. The release of US inflation data, together with meetings of the ECB and the Bank of England, noticeably reshaped traders’ expectations for early 2026. The key conclusion of the week: the US dollar is weakening, while equities and precious metals are positioning for a “Christmas rally.”
The Consumer Price Index (CPI) report became the focal point of the week. US inflation slowed more than anticipated, which in theory should have pressured the dollar, but in reality, it triggered skepticism among professional market participants.
🔑Key facts and market reaction:
Figures: Headline CPI declined to 2.7% (vs. 3.1% forecast), while core inflation fell to 2.6%, which is the lowest reading since 2021.
Technical impact: Market players remain cautious about these figures. Due to the prolonged government shutdown, BLS data collection overlapped with the period of aggressive holiday discounts (Black Friday), potentially distorting the inflation readings.
Rate expectations: The CME FedWatch tool shows minimal change in projections, with the probability of a January rate cut edging up slightly to 26%. Traders are awaiting confirmation of a sustainable disinflation trend in the December data.
Bottom line for the USD: The dollar continues to face pressure amid broad economic cooling (labor market, ISM data), but the “technical” character of the CPI report prevented a full-blown selloff.
The European Central Bank closed the year without surprises, leaving all three key interest rates unchanged for the fourth consecutive meeting.
🔑Key facts and market reaction:
Resilience above expectations: the ECB upgraded its 2025 GDP growth forecast to 1.4%. The EU economy has proven more resilient to US trade tariffs than anticipated under pessimistic scenarios.
Inflation factor: The regulator has stabilized inflation around the 2% level. However, divisions remain within the Governing Council: some members (Schnabel) warn of renewed inflation risks, while others (de Guindos) are concerned about an excessive economic slowdown.
EUR/USD forecast: In the coming months, the pair will remain highly sensitive to US-driven news flow. While the euro currently looks more stable, the absence of strong internal growth drivers in the EU is keeping the pair locked within a broad range..
The Bank of England (BoE) cut rates to 3.75% on Thursday, yet the market reaction was paradoxical—the pound strengthened.
🔑Key facts and market reaction:
Voting breakdown: The decision passed by a narrow 5–4 margin, with Andrew Bailey casting the decisive vote in favor of the dovish camp.
Hawkish undertone: Despite the rate cut, the BoE emphasized that the move was a one-off measure aimed at supporting the economy amid slowing inflation, not the beginning of an aggressive easing cycle. Bailey stressed that room for additional cuts in 2026 is extremely limited.
GBP/USD forecast: Markets interpreted the BoE’s caution as a constructive signal. The pound currently looks stronger than the dollar, and if weak US fundamentals persist, the pair may see further upside.
US equity indices closed the week higher: the S&P 500 gained 0.79%, while the Nasdaq 100 advanced 1.38%.
🔑Key facts and market reaction:
Perfect balance: Equities are benefiting from a classic “Goldilocks” environment: the economy remains resilient, while slowing inflation raises expectations of cheaper money ahead.
Tech catalyst: Easing inflation pressures provide a clear green light for Big Tech and AI-related stocks. Optimistic guidance from Micron Technology also supported the semiconductor sector.
Geopolitics: Lower trade-related risks and hopes for a peaceful resolution in Eastern Europe are boosting investor sentiment. Markets are positioning for the traditional Christmas rally.
Precious metals remain the primary beneficiaries of dollar weakness and ongoing geopolitical tensions
🔑Key facts and market reaction:
Gold (XAU/USD): Spot prices reached $4,372 per ounce. Slowing US core inflation reinforces expectations of rate cuts, significantly increasing the appeal of gold as a non-yielding asset.
Platinum: The metal climbed toward a 17-year high near $1,930, marking seven straight sessions of gains amid strong demand from the automotive sector.
Geopolitical hedge: The tanker blockade in Venezuela and increased US military presence in the region continue to support demand for safe-haven assets.
Bottom line: The week reaffirmed that US labor market data and inflation remain the key variables. Investor sentiment is optimistic, with capital rotating out of the dollar and into equities and gold ahead of the holiday rally.
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