NEW YORK, December 19, 2025 – A surprisingly strong US dollar is throwing a wrench into gold’s rally, preventing the precious metal from reaching record highs despite robust demand from central banks. Investors are questioning the reliability of recent inflation data, adding to the market’s uncertainty.
Central Banks Chart Divergent Paths
Global monetary policy is splintering, with some nations easing rates while others hold firm.
- The Bank of Japan raised its overnight rate to 0.75%, triggering a sell-off of the yen.
- The US dollar gained strength as investors downplayed a dip in US core inflation to 2.6% in November—the lowest since early 2021.
- The European Central Bank signaled it remains “comfortable” with its current policy, despite raising eurozone growth forecasts.
- Britain and Mexico have lowered rates, while Norway and Sweden are pausing.
The Bank of England lowered its repo rate to 3.75% with a narrow five-to-four vote. Governor Andrew Bailey cautioned about limited maneuvering room for further monetary expansion in 2026, prompting the futures market to scale back expectations to a 25-basis-point reduction. The pound initially rose but retreated following a reassessment of US inflation figures.
Meanwhile, the European Central Bank raised its eurozone growth forecasts to 1.4% for 2025 and 1.2% for 2026. The central bank anticipates inflation will remain below its target until 2028. Christine Lagarde dismissed calls from more hawkish members for raising deposit rates, reiterating the bank’s comfortable position. The EURUSD failed to surpass resistance at 1.176, resulting in a sell-off.
As widely predicted, the Bank of Japan increased its overnight rate to 0.75% at its December meeting. All 50 Bloomberg experts surveyed had anticipated this outcome. Following the announcement, the yen experienced a sell-off, and the Governing Council provided no indication of further monetary tightening.
What’s driving the dollar’s strength? Investors are largely ignoring the recent slowdown in US core inflation, which fell to 2.6% in November—a level not seen since the beginning of 2021. Concerns about data accuracy following a shutdown at the Bureau of Labor Statistics are also contributing to the market’s hesitancy.
This reluctance to fully trust US consumer price statistics has negatively impacted gold. The precious metal reached a recent high but couldn’t break through to a new record, retreating as the dollar strengthened. Goldman Sachs predicts continued tailwinds for gold, citing structurally high demand from central banks and potential support from Federal Reserve rate cuts.
