Cooling Inflation Data Fuels Rate Cut Bets; BoJ Hikes Rates to 0.75%

EUR/USD slipped modestly on Thursday, down 0.14% as traders digested a packed economic calendar on both sides of the Atlantic. Softer US inflation data and the European Central Bank’s decision to keep interest rates unchanged failed to provide fresh momentum for the single currency.

US data showed that November inflation continued to cool, with both headline and core readings falling to their lowest levels since early 2021, according to the Bureau of Labor Statistics. While the softer inflation profile reinforces the broader disinflation trend, stronger-than-expected labor market data tempered expectations for imminent Fed easing. Initial Jobless Claims declined to 224K for the week ending December 13, below forecasts and signaling continued resilience in employment conditions.

In Europe, the ECB left policy rates unchanged, as widely anticipated. President Christine Lagarde said the decision was unanimous and reaffirmed the central bank’s meeting-by-meeting approach. A Bloomberg report citing sources suggested that the ECB’s easing cycle is “most likely over,” reinforcing the perception that policymakers are comfortable maintaining current settings for now.

Market attention now turns to upcoming US releases, including the Fed’s preferred inflation measure—the Core Personal Consumption Expenditures (PCE) Price Index—and the final reading of the University of Michigan Consumer Sentiment Index. In Europe, traders will monitor ECB commentary from Mario Cipollone and Martin Kocher, along with October Current Account data.

Bitcoin traded with moderate gains early on Thursday, hovering near the $87,000 level after spending much of the week in a tight range, as investors absorbed softer-than-expected US inflation data that reinforced expectations for future Federal Reserve rate cuts.

Despite the modest uptick, Bitcoin remains on track for a weekly decline extending a consolidation phase following strong gains earlier in the year.

Bitcoin has struggled to sustain moves above the $90,000 level this month, with the psychologically important threshold continuing to cap upside attempts. Seasonal thin liquidity, typical of late-December trading, has dampened momentum and limited follow-through after brief rallies.

Bitcoin showed little immediate reaction to Thursday’s US Consumer Price Index data, which came in below expectations, with annual inflation easing to 2.7%.

The softer inflation reading strengthened market expectations that the Federal Reserve could accelerate rate cuts in 2026, as cooling price pressures give policymakers greater flexibility. Lower interest rates typically support risk assets by reducing the opportunity cost of holding non-yielding investments such as Bitcoin.

However, in the absence of crypto-specific catalysts, the inflation surprise alone was insufficient to drive a sustained move higher.

Oil prices were little changed in Asian trading on Friday but remained on track for a second consecutive weekly decline, as persistent concerns over a global supply glut outweighed support from ongoing geopolitical risks.

Market sentiment has been dominated by expectations that global oil supply will continue to outstrip demand into 2026. Rising production from non-OPEC producers, combined with muted consumption growth in major economies, has kept global inventories well supplied.

OPEC and its allies have also gradually increased output this year as they unwind earlier voluntary production cuts, adding further barrels to an already saturated market.

Weak demand from China has compounded these pressures. Slower growth in industrial activity and consumer spending in the world’s largest crude importer has limited gains in fuel consumption.

Recent data showing comfortable crude and refined fuel stockpiles in the United States and parts of Asia have reinforced the view that the market remains well buffered against potential disruptions.

Despite supply glut concerns, traders continued to monitor potential geopolitical risks that could threaten supply. One key focus is the possibility of additional US sanctions on Russia’s energy sector should efforts to secure a peace agreement in Ukraine falter.

Stricter measures targeting Russian crude exports or shipping could tighten global supplies, although the timing and scope of any such actions remain uncertain.

U.S. stocks ended higher on Thursday, led by a rebound in major technology shares after recent selling, as softer-than-expected consumer inflation data strengthened expectations for further Federal Reserve interest rate cuts next year.

U.S. inflation rose less than anticipated in November, marking the first full set of consumer price data released since the government shutdown ended in mid-November.

Still, the softer inflation data reinforced expectations for monetary easing. Market pricing now reflects roughly an 80% probability of at least 50 basis points of rate cuts through the end of 2026, up from about 75% before the release.

Investor sentiment received an additional boost from Micron Technology, which surged after reporting better-than-expected fiscal first-quarter earnings and issuing current-quarter guidance nearly double analyst estimates.

The memory chipmaker cited strong and sustained demand from the artificial intelligence sector, driven by continued investment in data center infrastructure.  Broader technology sentiment improved following several sessions of selling, with Alphabet, NVIDIA, Meta Platforms, and Microsoft all gaining more than 2%.