GBP/USD Softens as Markets Brace for BoE Cut and Digest Fed Signals

GBP/USD softened toward 1.3365 in early European trade on Thursday, with sterling easing as the US dollar regained some poise following the Federal Reserve’s (Fed) policy decision^[1]. The pair slipped into negative territory, though the downside remains measured after the Fed delivered its widely expected quarter-point cut on Wednesday. The Fed lowered rates for the third consecutive meeting, bringing policy into more accommodative territory. However, the tone was far from overtly dovish.^[2] Two policymakers voted against the cut, while newly appointed Stephen Miran favoured a larger move; a reminder of the emerging policy tension within the committee. Fed Chair Jerome Powell stressed that the central bank now needs space to assess how this year’s easing filters through the economy ^[3] , emphasising a data-dependent stance heading into 2026. Updated projections pointed to only one cut next year, though Powell acknowledged that incoming data could reshape that path. For sterling, the more immediate pressure comes from home. Markets now assign an 88% probability to a Bank of England (BoE) rate cut next week^[4] , as easing inflation pressures and a softer labour market reinforce expectations that policy accommodation is imminent. The divergence between a Fed slowing its pace of cuts and a BoE preparing its first reduction narrows sterling’s advantage and acts as a headwind for GBP/USD, even as the dollar’s rebound remains modest. Traders’ attention now shifts to US Initial Jobless Claims later today^[5] , a release that may offer fresh clarity on labour momentum and help set the tone heading into the BoE’s December decision. The GBP/USD exchange rate holds near 1.3365 as traders await clearer direction from the Fed’s guidance and next week’s BoE rate decision amid mounting expectations of a cut.

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EUR/USD Edges lower as Markets reassess Fed’s Outlook

EUR/USD slipped back toward 1.1690 in early European hours, pausing after its recent advance as markets reassessed the implications of the Fed’s latest move. The Fed’s quarter-point cut was widely expected, but the tone that followed was less permissive than markets had hoped, giving the dollar room to steady and leaving the euro hovering just below the 1.1700 threshold. The FOMC lowered rates to 3.5% - 3.75%, marking its third consecutive reduction and signalling that any further adjustments will depend on incoming data and the balance of risks^[6] . Powell emphasised that policymakers are now “well-positioned to wait,” reinforcing the sense that the central bank may pause in January. Futures pricing reflected this shift, with markets assigning a 78% probability that the Fed will hold rates steady at the January meeting, according to the CME FedWatch tool ^[7] . That recalibration helped stabilise the dollar on Thursday. The euro, meanwhile, remains supported by expectations that the European Central Bank (ECB) will keep policy unchanged next week^[8] . President Christine Lagarde reiterated that the current stance is appropriate, while Governing Council members Villeroy de Galhau and Simkus noted that there is no immediate case for further cuts or hikes^[9]. With inflation easing back towards target but activity still subdued, the ECB appears content to hold its ground for now. Market attention now turns to US Initial Jobless Claims later today, which could shape the near-term tone for EUR/USD, particularly as markets weigh whether the Fed’s caution or the ECB’s steadiness offers the firmer anchor for the pair. The EUR/USD exchange rate remains near 1.1690 hovering below 1.1700 threshold as markets balance the Fed’s cautious stance with expectations of an unchanged ECB policy heading into next week’s meeting.

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USD/JPY Steadies as Yen Strength Meets Fiscal Concerns Ahead of BoJ

USD/JPY pared early losses on Thursday, with the yen giving back most of its initial gains as the US dollar recovered modestly. The pair steadied after briefly dipping below 156.00 in Asian trading, though downside remains limited by expectations that the Bank of Japan (BoJ) may tighten policy next week^[10] . The yen had found early support after BoJ Governor Kazuo Ueda said the Bank is getting closer to sustainably meeting its 2% inflation goal^[11], a signal markets interpreted as preparation for Japan’s first rate increase in years. Markets now see a strong chance of a December hike^[12] , keeping underlying support for the yen in place even as risk sentiment improves elsewhere. At the same time, yen strength is facing counterforces. Japan’s expansive fiscal plans under Prime Minister Sanae Takaichi have revived concerns about public finances, while upbeat equity markets have reduced demand for safe-haven currencies. These factors helped the dollar regain some footing after the Fed’s rate cut on Wednesday, despite the decision being broadly dovish. From a technical standpoint, the slip through 156.00 hinted at near-term softness, though longer-term indicators still look constructive. Support sits around 155.35 - 155.30, with a break below 155.00 needed to signal a deeper move lower. A push back above 156.60 would open the way toward 157.00 and potentially the November highs near 158.00. The USD/JPY exchange rate stays close to 156.00 as the pair consolidates ahead of the Fed decision, with BoJ tightening expectations limiting upside for the recovering dollar.

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AUD/JPY Slips as Mixed Australian Jobs Data Weighs on Aussie Momentum

AUD/JPY fell toward 103.50 in early European trade on Thursday, retreating as the Australian dollar softened following a mixed labour-market print. The cross unwound part of its recent strength after the Australian Bureau of Statistics (ABS) reported that employment^[13] fell by 21.3k in November, sharply below expectations for a 20k increase, while the jobless rate held steady at 4.3%, beating forecasts for a small uptick. The immediate reaction pulled the Aussie lower as markets reassessed the domestic momentum heading into year-end. Even so, the downside remains cushioned by the RBA’s increasingly hawkish tilt. RBA Governor Michele Bullock reiterated that rate cuts are not on the horizon^[14] and confirmed that the Board had discussed the circumstances under which policy may need to tighten again should inflation fail to moderate. Markets now tentatively price the possibility of a hike in early-mid 2026^[15], keeping the medium-term bias for AUD supported despite the softer jobs read. The yen side of the cross remains clouded by Japan’s expansionary fiscal stance^[16] and lingering growth concerns under Prime Minister Sanae Takaichi’s administration. While expectations for a BoJ move next week remain firm, investors note that aggressive fiscal stimulus and uncertainty over Japan’s growth outlook continue to cap safe-haven demand for the currency. With both domestic data and central-bank narratives pulling in opposing directions, AUD/JPY may remain choppy intraday, awaiting clearer signals from next week’s BoJ meeting and broader risk sentiment. The AUD/JPY exchange rate trades around 103.50 as mixed Australian jobs data and shifting BoJ expectations keep the cross range-bound ahead of key central-bank updates.

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