Published by Global Banking and Finance Review
Posted on December 18, 2025
4 min readLast updated: January 20, 2026
The dollar fell against the yen after US inflation data missed expectations. The euro also eased following the ECB's decision to maintain interest rates.
By Chibuike Oguh and Samuel Indyk
NEW YORK/LONDON, Dec 18 (Reuters) - The dollar lost ground against the Japanese yen and Swiss franc on Thursday after data showed a lower-than-expected rise in U.S. inflation, while the euro eased after the European Central Bank held interest rates steady.
The U.S. Consumer Price Index rose 2.7% year-on-year in November, according to Labor Department data, compared with a 3.1% increase forecast by economists polled by Reuters.
The dollar weakened 0.12% to 155.50 against the Japanese yen and was down 0.14% to 0.79405 against the Swiss franc.
"The margin of error shouldn't be this great and it is questionable whether what we got in this release is going to make its way into the more traditional data collection discussion," said Marvin Loh, senior global market strategist at State Street in Boston.
"One of the things that ends up being a challenge in terms of changing expectations significantly is that we're already pricing in a Fed that gets to neutral within the next 12 months. So you either need to aggressively push against the neutral and/or start believing that there's a recession that will make you go below neutral and I don't think we're anywhere near there," Loh said.
The longest federal government shutdown in U.S. history had impacted data collection for the inflation report. The Federal Reserve tracks the Personal Consumption Expenditures Price Index for its 2% inflation target.
President Donald Trump said on Wednesday the next Fed chair will be someone who believes in lower interest rates "by a lot".
All of the known candidates - White House economic adviser Kevin Hassett, former Fed Governor Kevin Warsh and current Fed Governor Chris Waller - advocate for interest rates to be lower than they are now.
CENTRAL BANK MOVES
The euro edged lower in choppy trading after the European Central Bank kept its policy rates steady and took a more positive view on a euro zone economy that has shown resilience to global trade shocks.
The euro was last down 0.14% at $1.17240 against the dollar.
"Today's meeting offered no new information to change our view on the most likely policy path or the surrounding risk balance," Barclays analysts led by Mariano Cena said in an investor note. "We continue to expect the ECB to remain on hold for the next two years and see the risk tilted towards lower, not higher, policy rates over our forecast horizon."
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, edged up 0.06% to 98.435.
Sterling rose after the BoE delivered its fourth rate cut this year, although markets pushed back their expectations for further easing, with the next cut not fully priced until June, from April prior to the decision.
Sterling strengthened 0.09% to $1.33846.
"Interest rate markets have reduced their bets on further easing, likely on account of both the finely balanced nature of upcoming decisions and the Governor's comment that room for further reductions is becoming more limited. Two-year sterling swap rates are roughly five basis points higher," said Tom Priscott, FX trader at Investec.
"The pound may have further room for upside as traders recalibrate their outlooks for 2026 through the afternoon," Priscott said.
The Swedish and Norwegian central banks both kept their main interest rates on hold, in line with expectations. The Swedish crown was last down 0.29% at 10.8855 per euro, while Norway's crown was last down 0.52% at 11.9173 per euro.
The Bank of Japan looks almost certain to raise short-term interest rates on Friday to 0.75% from 0.5% as high food costs keep inflation above the central bank's 2% target.
(Reporting by Chibuike Oguh in New York and Samuel Indyk in London, Editing by Kirsten Donovan, Ed and Nick Zieminski)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power.
A central bank is a financial institution that manages a country's currency, money supply, and interest rates.
Interest rates are the amount charged by lenders to borrowers for the use of money, expressed as a percentage.
The CPI is a measure that examines the average change over time in the prices paid by consumers for a basket of goods and services.
Foreign exchange refers to the global marketplace for buying and selling national currencies against one another.
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