Markets Balance Policy and Geopolitics (12.29.2025)

Trump voiced cautious optimism over peace progress with Zelenskiy despite unresolved issues in eastern Ukraine and indicated a willingness to engage Russia and Europe in upcoming negotiations.

The euro held above 1.17 during a quiet holiday period as diverging ECB and Fed policy paths continued to support the single currency. The yen strengthened on speculation of further BOJ tightening, while gold and silver pulled back from record levels as traders took profits amid cautious optimism on geopolitics. Sterling edged higher above 1.35 as expectations of future Fed easing contrasted with the BoE’s gradual approach.

Euro Steady Amid ECB–Fed Policy Split

The euro maintained its position above $1.17 during a quiet holiday week, staying near its highest level since late September. This strength is driven by diverging central bank strategies; the ECB held rates steady for a fourth meeting, indicating a prolonged pause supported by a better growth outlook and economic durability. Simultaneously, cooling US inflation has helped bets that the Federal Reserve will lower rates next year, providing the single currency with extra support.

Technically, 1.1720 is the key support, while resistance is seen at 1.1800.

Yen Gains Amid Tightening Speculation

The Japanese yen advanced beyond 156 per dollar during quiet year-end sessions as markets evaluated future rate hikes and potential intervention. Attention centered on the Bank of Japan’s December summary, which revealed internal discussions regarding further tightening. Some officials argued that current policy is still too accommodative in real terms, while others noted that extended low rates have strained the yen, reinforcing the outlook for a cautious normalization of monetary policy.

Technically, resistance stands near 157.00, while support is firm at 156.00.

Gold Pulls Back Below $4,500

Gold prices dipped under $4,500 per ounce on Monday, retreating from recent peaks as investors locked in profits. This decline followed cautious optimism regarding geopolitics, as President Donald Trump suggested progress in Ukraine peace negotiations, despite a final agreement remaining distant. Notwithstanding this dip, gold has gained over 70% in 2025, underpinned by strong central bank buying, ETF demand, persistent global tensions, and the prospect of more Federal Reserve rate reductions.

Gold sees support near $4475, while resistance is around $4550.

Sterling Edges Above 1.3500

GBP/USD rose past 1.3500 on Monday, bouncing back from initial lows as a softer US dollar reflected expectations of further Federal Reserve easing in 2026. Market attention has turned to the forthcoming FOMC December minutes for insight into future US policy. Concurrently, the Bank of England’s restrained approach marked by a close rate cut vote and ongoing inflation indicates a slow path toward lower rates, which continues to support the pound's strength.

From a technical view, support stands near 1.3430, with resistance around 1.3550.

Silver Retraces From Record Highs

Silver prices dropped over 3% toward $77 per ounce on Monday as traders took profits after a strong year-end surge to a peak near $81. Market sentiment shifted following President Donald Trump’s comments on progress toward a Ukraine peace agreement, even if a final resolution remains distant. Despite this retreat, silver is poised for a significant annual gain, supported by supply deficits, heavy investment, and anticipation of 2026 US rate cuts.

From a technical view, resistance stands near $81.50 while support is located around $76.70.