The European Central Bank and the Bank of Japan both held interest rates this week and both signalled that more tightening could follow. Neither currency broke out of its range. EUR/USD settled around 1.1167-1.1180, while USD/JPY eased only to about 157.1.
The ECB kept rates unchanged on 29 October, and the Bank of Japan (BoJ) did the same on 30 October. Both sounded hawkish, meaning they leaned towards raising rates to fight inflation. In the US, faster growth and steady inflation data kept the dollar supported, which limited how much either currency could gain.
That disconnect is the story for anyone tracking the major pairs. Hawkish language usually lifts a currency, and this week it barely did.
Here is which signals actually moved each pair, which ones the dollar absorbed, and what to watch next.
Why did hawkish holds fail to move EUR/USD and USD/JPY much?
On paper, the two decisions sent the same message: no move now, but higher rates remain possible. The currency reactions told a different story, because each bank attached a different caveat to its signal.
| Central bank | Decision and vote | Key signal | Pair reaction |
|---|---|---|---|
| ECB (29 October) | Unanimous hold, deposit rate 2.50% | December hike possible, no pre-commitment | EUR/USD dipped to 1.1104, closed near 1.1180 |
| BoJ (30 October) | 8-1 hold at about 1.25% | Will keep raising rates, conditions still accommodative | USD/JPY eased to about 157.115 |
EUR/USD: dip, reversal, no breakout
The ECB left its main refinancing rate at 2.65% and its marginal lending rate at 2.90%. Christine Lagarde, ECB President, said policymakers had discussed a hike, and that higher energy prices kept a December increase on the table.
Lagarde said the Governing Council considered itself sufficiently well positioned to hold, and that a measured approach remained appropriate.
EUR/USD first slid to about 1.1104, its lowest level since May. It then recovered on the hawkish tone and traded near 1.1167 shortly after the decision. Standard Chartered put the close at around 1.1180, and on Friday morning the pair could not get past 1.2000‘s nearer cousin, 1.1200.
The hesitation has a recent precedent. When the ECB hiked in September, the euro fell because markets focused on the damage higher rates could do to growth.
The September ECB rate hike came alongside upward revisions to staff inflation projections, which helps explain why the euro struggled to rally on tightening and why markets kept pricing further moves rather than treating 2.50% as a finishing line.
USD/JPY: yen gains capped near 157
The BoJ’s signal had a sharper edge. Board member Hajime Takata dissented, voting for a rise to 1.50%. Governor Kazuo Ueda said underlying inflation is roughly at 2%, but that stable, sustainable 2% inflation has not yet been secured.
On FXS Speechtracker’s tone gauge, his remarks earned 7.2 out of 10, short of the usual 7.7 benchmark, which implies somewhat less conviction. Reuters reported the yen firming to about 157.115 per dollar, while FXStreet cited about 157.55 earlier in the Asian session; the gap likely reflects timing. Talk of possible intervention, where Japanese authorities sell dollars to support the yen, around 157.30 also acts as a ceiling.
The lesson for you: a hawkish central bank is not enough to move a currency when growth risk or US yields push the other way. Reading the signal without that backdrop can mislead.
How are strong US data and a tech wobble shaping the dollar backdrop?
The other side of each pair is the dollar, and the US data this week gave it plenty of support.
| Indicator | Figure | Why it matters for the dollar |
|---|---|---|
| Q3 GDP (advance) | 3.4% annualised vs 3.1-3.2% forecast | Strong growth supports higher US rates |
| September core PCE | 3.1% y/y, up from 3.0% | Above-target inflation keeps the Fed cautious |
| September headline PCE | 3.6% y/y | Adds to price pressure |
| 10-year Treasury yield | About 4.964% intraday, official 4.98% | Still high, but slipped below 5% |
Core PCE (personal consumption expenditures) is the Federal Reserve’s preferred inflation gauge, excluding volatile food and energy. Put next to 3.4% growth from the Bureau of Economic Analysis, it points to US rates staying high. That kept the dollar firm and soaked up most of the benefit from Frankfurt and Tokyo.
Fed-driven dollar strength has overridden even firm eurozone data in recent weeks, with a strong composite PMI failing to stop the euro selling off as markets prioritised the US yield advantage over European momentum.
Then Alphabet complicated things. The stock dropped over 10% to its weakest point since April after the company warned that AI-generated search summaries were eating into advertising revenue, and it disclosed free cash flow of roughly negative $9 billion.
Treasuries rallied, pulling the 10-year yield down more than 8 basis points (a basis point is one hundredth of a percentage point). Nasdaq futures were down about 2% on Friday morning. Lower US yields tend to weigh on USD/JPY. The US Dollar Index (DXY), which tracks the dollar against major currencies, read about 102.2 per Trading Economics on 29 October, versus about 101.80 per FXStreet today.
Today’s calendar could shift things again:
- German preliminary October inflation
- Eurozone Q3 GDP
- US Q3 Employment Cost Index
- Speeches from ECB and Fed officials
For you, this means both pairs are being driven as much by US yields and risk mood as by the ECB or BoJ. A heavy US data day can override central bank messaging entirely.
What matters for the euro after December, and what could cap tightening?
The near-term question is whether the ECB hikes in December. The more useful question is what happens next, and the major banks disagree.
Economist expectations for December have firmed even as the October meeting passed without action, with a large majority of surveyed forecasters still pencilling in a 25 basis point increase and a growing minority seeing the deposit rate peaking higher.
| Source | December call | Beyond December | EUR/USD view |
|---|---|---|---|
| Commerzbank | Hike | Hold through 2027 | Depends on energy prices |
| MUFG | Hike | Another move, towards 3.00% | About 1.08-1.14 range |
| Standard Chartered | One more move | Pause; markets price two hikes by H1 2027 | Range-bound |
Commerzbank’s view: The euro’s direction depends more on what follows December, and on energy prices, than on the next meeting itself. The weeks before December will bring plenty of new information.
Reuters commentary captured the tension: hawkish ECB signals give the euro less lift because investors fear tighter policy will hurt growth. The ECB’s problem is largely cyclical, an external energy shock. The BoJ’s is more structural, with labour shortages, wage-price interaction, crude oil, AI-related demand and a weak yen all adding to price pressure.
Several risks could cap tightening:
- Overtightening that tips the euro area towards recession
- An easing of the Middle East energy shock, which Commerzbank’s moderate view assumes
- French fiscal risk, which MUFG flagged alongside high energy prices
- BoJ caution until it knows whether wage-led inflation will last
Treat December as a checkpoint, not a catalyst. A hike alone does not settle the euro’s trend; the energy price path does. These forecasts are speculative and subject to change as market conditions develop.
What this week’s holds change, and what they leave open
Two hawkish holds produced two muted reactions. The euro’s gains were held back by growth fears, and the yen’s by US yields and intervention risk, while the dollar’s growth and yield support absorbed most of the signal.
From here, four markers matter most: the energy price path, the December ECB meeting, the direction of US Treasury yields, and whether USD/JPY pushes into the intervention-sensitive zone near 157.30.
If you track these pairs, weigh the US backdrop as heavily as any central bank statement.
This article is for informational purposes only and should not be considered financial advice. Investors should conduct their own research and consult with financial professionals before making investment decisions. Past performance does not guarantee future results.
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