The dollar softened across the board in Thursday's session as traders positioned for the year-end holiday period, with persistent expectations of Federal Reserve easing in early 2026 keeping the greenback on the defensive. Market participants say the combination of dovish Fed communications from this month's policy meeting and thinning liquidity has amplified downward pressure on the U.S. currency.
Commodity currencies emerged as the primary beneficiaries of the dollar's retreat. The Australian and Canadian dollars advanced against their U.S. counterpart, supported by resilient energy prices and optimistic sentiment around Chinese demand recovery. Traders note that OPEC+ supply management strategies have maintained crude oil stability, providing a tailwind for oil-sensitive currencies. Meanwhile, the Norwegian krone gained ground as North Sea production outlooks improved and European energy security concerns showed signs of easing.
Among major pairs, the euro and sterling maintained their upward trajectory as central bank divergence themes persisted. European Central Bank officials have struck a more cautious tone on additional rate cuts, contrasting with the Fed's dovish tilt. According to currency strategists, this policy differential continues to attract flows into European assets. The yen also strengthened modestly as Bank of Japan normalization expectations remained intact following this week's summary of opinions from the December meeting, which hinted at growing comfort with gradually removing accommodation.
Gold continued to attract institutional interest, with traders reporting steady central bank accumulation throughout the month. The precious metal's appeal as a portfolio diversifier has grown amid concerns about U.S. fiscal sustainability heading into 2026. Technical analysts observe that momentum indicators remain constructive, with the metal holding above key moving averages that have defined the bullish structure since November.
Bitcoin and broader cryptocurrency markets experienced heightened volatility as year-end profit-taking clashed with optimism about regulatory clarity developments expected in the first quarter. Digital asset traders say institutional flows have remained net positive despite recent choppy price action, with options markets pricing in continued two-way risk.
Looking ahead, market participants are closely monitoring liquidity conditions as the Christmas and New Year holidays approach. Thin trading volumes could exacerbate price movements, particularly if unexpected geopolitical developments or data surprises emerge. Traders also say positioning data suggests many investors have already squared books for the year, potentially dampening volatility into month-end.
Disclaimer: This analysis is AI-generated for educational purposes. Traders should verify all information and conduct their own research before making trading decisions.