Forex:dollar euro yen amid inflation and central bank

Updated November 12, 2026

The foreign exchange market has shifted direction since the November 5 session. Higher-than-expected US inflation and a more hawkish Federal Reserve have pushed the dollar to a 19-month high. The euro has fallen to around $1.108, while USD/JPY has moved closer to 160, a level that has put the possibility of Japanese authorities intervening back in focus.

The dollar weakened on November 5 after the US midterm elections. That move proved fragile: market attention quickly returned to inflation, bond yields and the possibility of further rate increases.

The dollar: inflation puts the Fed back in focus

The US Consumer Price Index rose 0.4% in October, compared with expectations of 0.3%. Core inflation increased by 0.3%, above the 0.2% forecast. The data strengthened expectations of tighter monetary policy: some investors see a 50-basis-point increase in December as possible, while several banks have begun forecasting another hike in the early months of 2027.

The labour market also supports this view. Data released in November showed that 165,000 jobs were added in October and the unemployment rate fell to 4.1%. The combination of persistent inflation and solid employment gives the Fed more room to maintain a restrictive policy. Treasury yields rose after the inflation report, making the dollar relatively more attractive.

The next key factor for the greenback will be comments from Fed officials. Any indication of the pace or scale of rate increases could prompt further moves in yields and exchange rates.

The yen: pressure near 160, but intervention risk is rising

The yen remains under pressure from the wide interest-rate gap between Japan and the United States. On November 12, the dollar traded near 159.74 yen, after reaching a high not seen in more than two months. Japanese officials have warned that traders should not forget previous interventions in the currency market; as the exchange rate approaches 160, investors may become more cautious.

The Bank of Japan’s signals, however, are mixed. One board member warned against raising rates too quickly, arguing that this could hurt growth. At the same time, Japanese wholesale inflation accelerated to 7.1% year over year in October, up from 6.8% in September, while yen-denominated import prices rose 24.8%. These figures keep alive expectations of a possible rate increase in December, from the current 1.25% to 1.5%.

In the near term, USD/JPY will depend on the balance between expectations for the Fed and the BoJ. A dollar supported by higher US yields could push the exchange rate above 160. More decisive signals from the Japanese central bank, or direct currency intervention, could instead help the yen recover.

The euro: energy costs and the prospect of an ECB rate increase

The euro has fallen to its lowest level against the dollar since May 2025, weighed mainly by the US currency’s strength. The outlook for Europe is also challenging: eurozone inflation reached 4% in October, a three-year high, driven mainly by energy costs. Core inflation, however, remained more moderate at around 2.5%.

The ECB left interest rates unchanged and said it would assess incoming data to determine whether a rate increase in December is needed. Christine Lagarde highlighted the difficulty of responding to higher energy costs that are weighing on growth while also pushing up prices. Tighter policy could support the euro through higher interest rates, but that effect may be limited if energy costs weaken consumption and economic activity.

EUR/USD is therefore being pulled in two directions: the prospect of a more restrictive ECB could support the euro, while expectations of larger Fed rate increases favour the dollar. For now, the monetary-policy balance is tilted towards the US currency.

Scenarios to watch

In the near term, the dollar remains supported as long as US data confirms price pressures and the Fed appears ready to keep rates high. The euro could find support if the ECB confirms a December rate increase and European inflation spreads to wages and core prices. For the yen, investors will need to watch both BoJ decisions and any intervention by Japanese authorities as USD/JPY approaches 160.

Geopolitics continues to shape the outlook through energy prices. Oil prices have fallen following signs of reduced concern about further US military action against Iran, but the situation remains a potential source of volatility. Another rise in energy prices could fuel inflation, complicate central bank decisions and quickly shift the outlook for currency markets.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a solicitation to invest, or an investment recommendation. Forex trading involves significant risks, including the possible loss of capital. The assessments and scenarios described may change rapidly.