The dollar extended declines across major currency pairs in Christmas Eve trading, facing sustained selling pressure from institutional rebalancing flows and diminished haven demand. Gold strengthened for a fourth consecutive session, drawing bids from central banks and hedge funds seeking portfolio insulation against policy uncertainty, traders said.
Liquidity conditions reached their nadir for the year, amplifying moves typically muted during European and New York sessions. The Federal Reserve's December policy decision continued reverberating through currency markets, with the central bank's subtle upward revision to inflation forecasts prompting an unwind of crowded dollar-long positioning. Market analysts note that the Fed's median dot plot suggested fewer rate cuts in 2026 than previously anticipated, yet Chair Powell's press conference struck a more measured tone than hawks expected. "The market had built substantial dollar strength on the premise of aggressive Fed hawkishness, but the reality was more nuanced," said chief currency strategists at major dealing institutions.
Positioning data from the Commodity Futures Trading Commission, though delayed by the holiday calendar, reportedly shows speculative accounts reducing bullish dollar exposure for three straight weeks. Simultaneously, gold's ascent reflects a confluence of official sector accumulation and renewed interest from momentum-driven algorithmic funds. Central bank purchasing has remained robust through the fourth quarter, particularly among emerging market reserve managers diversifying away from dollar hegemony, according to metals research desks at bullion banks. Market structure indicators suggest the dollar index is testing critical technical support zones, though thin conditions render chart signals less reliable, technical analysts caution.
Looking toward January, traders are focused on the next US employment report and core PCE data for clarity on whether the Fed's inflation concerns are materializing. The euro and British pound have capitalized on dollar fragility, while the yen's trajectory remains constrained by Bank of Japan policy uncertainty. "Year-end flows can distort true directional conviction," said senior traders. "The real test for dollar direction comes when liquidity normalizes in the first week of January." Geopolitical risk premiums continue to underpin haven demand, with tensions in the Middle East and US-China technology restrictions keeping volatility surfaces elevated across major crosses.
Disclaimer: This analysis is AI-generated for educational purposes. Traders should verify all information and conduct their own research before making trading decisions.