Major foreign exchange currencies strengthened on Tuesday as the U.S. dollar softened ahead of several key economic data releases. The Japanese yen led gains after Tokyo issued a firm warning that it is prepared to intervene in currency markets if volatility becomes excessive.
The dollar weakened in thin holiday trading, with investors focused on upcoming U.S. gross domestic product (GDP) and personal consumption expenditures (PCE) price index data due later in the day. Both indicators are expected to shape expectations for U.S. interest rate policy heading into 2026.
Trading activity across Asia and Europe remained subdued due to year-end holidays. Even so, most regional currencies are holding onto gains against the dollar for the year. The Japanese yen, despite sharp fluctuations throughout 2025, has remained broadly flat against the greenback on an annual basis.
Yen jumps on intervention warning
The Japanese yen strengthened sharply on Tuesday, with the USD/JPY pair falling about 0.7%. The move came after a warning from Japan’s Finance Minister, Satsuki Katayama, which pushed the currency off some of its highest levels of the year.
Katayama said recent yen movements were driven by speculation rather than economic fundamentals and warned that authorities would take “appropriate action” to counter excessive swings. The statement marked Tokyo’s strongest signal so far against bets on yen weakness and triggered fears of potential government-led dollar selling.
Japan has previously intervened in currency markets when the dollar traded between 155 and 160 yen, reinforcing the credibility of the warning.
Dollar slips ahead of GDP and PCE data
The dollar index and its futures fell more than 0.3% during European trading, following a muted session on Monday. The euro climbed nearly 0.3% against the dollar, while sterling gained close to 0.4%.
Pressure on the dollar intensified as traders adopted a cautious stance ahead of delayed U.S. economic data releases. GDP figures for the third quarter are expected to show a slowdown in growth compared with the previous quarter. Meanwhile, PCE inflation data—the preferred inflation gauge of the Federal Reserve—is forecast to show inflation remaining stubbornly elevated.
Analysts cautioned that data for October and November may have been distorted by the earlier government shutdown, suggesting that December figures will carry more weight for future policy decisions. Markets are currently pricing in a Federal Reserve rate hold in January, although interest rates are still expected to trend lower over the longer term.
