On January 7, the latest data from Germany's Federal Statistical Office showed that the Consumer Price Index (CPI) in December 2025 increased by 2.0% year-on-year, significantly lower than the 2.6% rise in November and also below the market's general expectation of 2.2%. This unexpected slowdown brought Germany's inflation rate back to the European Central Bank's 2% target level for the first time since June 2025. Economists widely anticipate that the Eurozone's December CPI year-on-year increase, due for release this week, will also retreat to the 2% target. Despite this, analysts note that data from a single month is insufficient to prompt the European Central Bank to adjust its current monetary policy stance. Recent ECB projections indicate that inflation rates for 2026 and 2027 will be slightly below the 2% target, and while policymakers have expressed confidence in the "progress of the disinflation process," they remain vigilant about potential risks.
Furthermore, Federal Reserve Governor Milan stated on Tuesday local time that more aggressive interest rate cuts are necessary this year to sustain continued economic growth. It is noteworthy that Milan's term as a Federal Reserve Governor is set to conclude at the end of this month. In an interview with media that day, Milan said, "I believe current monetary policy is clearly restrictive and is dragging down economic development." He added, "A rate cut exceeding 100 basis points this year is highly likely and is justifiable from a policy perspective." Milan indicated that underlying inflation has essentially returned to near the Fed's 2% target, and he expects the U.S. economy to maintain robust growth this year. He believes this outlook could be jeopardized if the Fed fails to reduce short-term borrowing costs.
Key data to watch today includes Germany's November month-on-month Real Retail Sales, Germany's December Seasonally Adjusted Unemployment Rate, the Eurozone's December Harmonized CPI Annual Rate, the U.S. December ADP Employment Change, the revised U.S. October Durable Goods Orders Month-on-Month, U.S. October Factory Orders Month-on-Month, the U.S. December ISM Non-Manufacturing PMI, and U.S. November JOLTs Job Openings.
Dollar Index The Dollar Index edged higher yesterday with a slight gain on the daily chart, and the spot exchange rate is currently trading around 98.50. Besides the continued support from a cooling expectation of Fed rate cuts, safe-haven demand spurred by geopolitical tensions also provided some underpinning for the index. However, dovish remarks from Fed officials limited the index's rebound potential. Focus today is on resistance near 99.00, with support around 98.00.
EUR/USD The Euro declined slightly yesterday, closing lower on the daily chart, with the spot rate currently trading around 1.1700. Apart from downward pressure from a stronger Dollar Index, weak economic data from Germany released during the session was a significant factor weighing on the pair. Nonetheless, expectations that the ECB's rate-cutting cycle is nearing its end limited the pair's downside. Attention today is on resistance near 1.1800, with support around 1.1600.
GBP/USD The British Pound fell yesterday, narrowly holding above the 1.3500 mark, with the spot rate currently trading around 1.3510. Profit-taking exerted some selling pressure, while the Dollar Index's rise, supported by factors including safe-haven demand, was also a key element pushing the Pound lower. Additionally, disappointing economic data from the UK released during the session contributed to the downward pressure. Focus today is on resistance near 1.3600, with support around 1.3400.
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