Fed Minutes in Focus as Investors Seek Clarity on 2026 Rate Path

EUR/USD is holding its ground around the 1.1770 level during Tuesday’s Asian hours, remaining almost unchanged so far this week after finishing 0.56% up last week. The pair is currently in a consolidation phase as traders adopt a cautious stance ahead of the FOMC December Meeting Minutes scheduled for release later today. Investors are looking to these minutes for clearer signals regarding the Federal Reserve's 2026 outlook, which could determine if the pair breaks out of its current range.

The Euro is finding support from the diverging policy paths between the European Central Bank (ECB) and the Federal Reserve. While the Fed delivered a cumulative 75 basis points in cuts during 2025 and markets are pricing in two additional reductions for 2026, the ECB has maintained a steadier hand. President Christine Lagarde recently signaled that rates are likely to remain unchanged for the time being, a stance that contrasts with the 16.1% probability of a January Fed cut currently reflected in the CME FedWatch tool.

The dollar’s own challenges stemming from a cooling US labor market and the prospect of further policy easing, continue to prevent significant downside for the EUR/USD pair as the market enters the final days of the year.

Gold prices edge higher above $4,350 during Tuesday’s early European session, recovering some ground after a move of 4% lower on Monday. The previous session's sharp decline, the largest single-day loss since October, was primarily triggered by the CME Group raising margin requirements for gold and silver futures, which forced widespread profit-taking and portfolio rebalancing. Despite this pullback, the yellow metal remains supported by persistent geopolitical instability and a weakening outlook for the USDX.

The downside for the non-yielding asset remains limited as markets price in a 16.1% probability of a Federal Reserve rate cut in January, with broader expectations for further easing throughout 2026. While the stronger-than-expected US Pending Home Sales data provided a brief headwind, the metal continues to attract safe-haven flows amidst escalating tensions between Russia and Ukraine.

Traders are now shifting their focus to the release of the FOMC Meeting Minutes later today for fresh impetus. While trading volumes are expected to remain thin heading into the New Year holiday, the combination of lower projected interest rates and global economic uncertainty maintains a constructive backdrop for gold as it attempts to stabilize following Monday's volatility.

Oil prices held steady during Tuesday's Asian session as market participants balanced escalating geopolitical tensions against an unexpected build in U.S. inventories. This period of consolidation follows a strong performance on Monday, where WTI Oil and Brent moved 1.01% and 0.82% higher, respectively. The upward momentum was primarily driven by faltering peace negotiations between Russia and Ukraine, with President Putin signaling a revision of Moscow's negotiating stance following reported drone activity near his residence.

Geopolitical risks were further heightened by President Trump’s warning that the U.S. would strike Iran if it resumed its nuclear program, maintaining a high risk premium in the Middle East. These supply-side concerns currently outweigh bearish signals from the U.S. Energy Information Administration (EIA), which reported an unexpected rise of 405,000 barrels in crude stocks for the week ended December 19. Gains in gasoline and distillate inventories also suggested a slight softening in seasonal demand.

As the market enters 2026, investors remain focused on diplomatic developments in Eastern Europe and upcoming OPEC+ guidance.

The main US equity indices moved lower on Monday as investors engaged in profit-taking following a series of record highs. This broad selloff was partially offset by strength in defensive sectors, though the market ultimately ended in negative territory amidst light holiday trading volumes. Despite the Monday pullback, global indices remain on track to conclude 2025 with significant double-digit gains, having demonstrated resilience throughout a year marked by trade tensions and shifting monetary policies.

Technology shares led the decline after reaching peak valuations last Friday, with Nvidia falling -1.19%, Palantir dropping -2.39%, and Broadcom slipping -0.75%. While momentum-driven corners of the market took a breather, overall sentiment continues to be underpinned by cooling inflation data and the historical tendency for markets to rise during the final sessions of the year. Treasury yields eased as investors reassessed the path of interest rate cuts for 2026, providing a complex backdrop for equity valuations as the year draws to a close.

Looking ahead, market participants are monitoring both geopolitical developments and upcoming economic data for clarity on next year's growth prospects. While uncertainty regarding Eastern European peace negotiations has introduced some volatility, the underlying strength of consumer spending and business investment has maintained an optimistic long-term outlook.