Metals Lead as Central Banks Show Divergence (22-26 December)

This week tied together central bank decisions, shifting rate expectations, and a steady flow of economic data, with markets responding across currencies, commodities, and bonds.

Record moves in precious metals, firm signals from policymakers, and fresh labor and inflation figures shaped how assets were priced as the year moves toward its final stretch.

Currencies

Dollar Index: The dollar index hovered near 98.5, ending the week largely unchanged as softer US inflation at 2.7% and a rise in unemployment to 4.6% reinforced expectations that the Fed has more flexibility on rates in 2026.
Euro: The euro steadied around 1.1733 after the ECB held rates, with officials framing policy as broadly neutral and sticking to a data-driven approach as inflation stays close to 2% and growth projections edge higher.
British Pound: Sterling climbed toward 1.34, near two-month highs, as a split BoE vote and guidance for gradual easing tempered expectations for a faster pace of rate cuts despite the 25 bp move.
Japanese Yen: The yen rebounded to around 157 per dollar after officials signaled readiness to act against sharp moves, following the BoJ’s rate increase to 0.75%, which offered limited immediate currency support.

Commodities

Gold Writes a New Record

Gold pushed to a fresh record near $4,380 per ounce, supported by expectations of additional Fed rate cuts and rising demand for defensive assets. Weaker US inflation data reinforced pricing for two rate reductions next year, while developments tied to Venezuelan oil flows and renewed tension around Ukraine added to safe-haven interest. Gold is now up over 60% in 2025, its strongest yearly performance since 1979, backed by steady central bank buying and consistent ETF inflows.

Brent Finds Support in Tension

Brent climbed to around $60.8 per barrel, extending recent gains as US-Venezuela tensions revived supply concerns. Reports of further US monitoring activity near Venezuelan waters followed earlier tanker seizures, while Ukraine’s strike on a Russian tanker in the Mediterranean added another layer of risk. Even so, Brent remains on track for a yearly decline, with expectations pointing to a well-supplied oil market over the longer term.

Silver Stays in Record Territory

Silver traded above $65.5 per ounce, staying close to record levels as strong fundamentals kept demand firm. The metal is heading for a fourth consecutive weekly gain and is up more than 120% this year, supported by lower rates, fiscal concerns, and steady industrial demand from solar, EV, and data center sectors. Tight supply conditions, particularly in London, are expected to persist into 2026.

Fixed Income

U.S. 10-Year Treasury: The yield moved toward 4.2%, its highest since early September, as mixed Fed commentary followed the third 25 bp cut, with some officials urging caution on further easing while others highlighted labor-market risks, reinforcing guidance for only one more cut in 2026.
UK 10-Year Gilt: Gilt yields eased to just below 4.49%, a two-week low, after the BoE’s 25 bp cut, though a tight 5-4 vote split and a gradual, data-driven stance trimmed expectations for aggressive easing, with markets pricing around 62 bp of cuts by end-2026.
Japan 10-Year Government Bond: Yields surged toward 2.1%, the highest since 1999, after the BoJ lifted rates to 0.75%, as inflation stayed above target at 2.9% headline and 3.0% core, while Governor Ueda stressed flexibility and market-driven long-term rates.
Germany 10-Year Bund: The Bund yield rose to 2.89%, up 4 bp on the day and 17 bp over the past month, leaving yields 61 bp higher year-on-year as upward pressure on long-term rates persisted.

Economic Data

US Unemployment Rate: The US unemployment rate climbed to 4.6% in November 2025, up from 4.3% in August and above expectations of 4.4%, marking the highest level since September 2021. The number of unemployed held broadly steady at 7.8 million, while total employment and labor force participation remained largely unchanged at 62.5%. The broader U-6 rate also increased, driven mainly by a sharp rise in involuntary part-time employment.

US Nonfarm Payrolls: Job growth in November is expected to come in around 50,000, following a likely contraction in October linked to federal government cost-cutting. More than 150,000 federal employees exited through deferred buyout programs, weighing on October payrolls. November hiring is seen concentrated in healthcare, social assistance, and leisure and hospitality, while average hourly earnings are forecast to rise 0.3%. Due to the government shutdown, full labor data for October were not collected, and that month’s unemployment rate will not be reported.

US Inflation Rate: US annual inflation eased to 2.7% in December 2025, the lowest since July and below expectations of 3.1%, down from 3.0% in September. Energy prices rose 4.2%, led by fuel oil and natural gas, while food prices increased 2.6% and shelter costs rose 3.0%. Gains were also seen in medical care, household furnishings, recreation, and used vehicles, while price pressures remained modest for apparel and new vehicles.

ECB Interest Rates: The ECB left policy rates unchanged for a fourth straight meeting, keeping the main refinancing rate at 2.15% and the deposit facility rate at 2.0%. Officials reiterated a data-driven, meeting-by-meeting approach, with President Christine Lagarde noting that neither hikes nor cuts were discussed and that no preset policy path is in place.

Euro Area Inflation Rate: Eurozone inflation was revised down to 2.1% in November 2025, matching October’s pace. Inflation eased for food, alcohol, tobacco, and non-energy industrial goods, while services inflation picked up to 3.5% and energy prices declined less sharply at -0.5%. Inflation ranged from 0.1% in Cyprus and 0.8% in France to 4.7% in Estonia and 4.3% in Croatia, with Germany at 2.6% and Spain above 3.2%.

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