Markets digested a surge in defense spending proposals and maintained cautious positioning on Thursday, with equities fractured between a small-cap rally to record highs and big tech weakness, while traders awaited Friday’s December employment report for clearer signals on the labor market trajectory.
Check out the forex news and economic updates you may have missed in the latest trading session!
Forex News Headlines & Data:
- President Trump announced that the U.S. military budget for fiscal year 2027 should be increased to $1.5 trillion, up from approximately $1 trillion currently planned
- Japan Average Cash Earnings for November 2025: 0.5% (2.3% forecast; 2.6% previous)
- Australia Balance of Trade for November 2025: 2.94B (3.8B forecast; 4.39B previous)
- Japan Consumer Confidence for December 2025: 37.2 (38.1 forecast; 37.5 previous)
- Germany Factory Orders for November 2025: 5.6% m/m (-0.6% m/m forecast; 1.5% m/m previous)
- U.K. Halifax House Price Index for December 2025: -0.6% m/m (0.1% m/m forecast; 0.0% m/m previous)
- Swiss CPI Growth Rate for December 2025: 0.0% m/m (-0.1% m/m forecast; -0.2% m/m previous); 0.1% y/y (0.0% y/y forecast; 0.0% y/y previous)
- Swiss SNB Monetary Policy Meeting Minutes
- Euro area ECB Consumer Inflation Expectations for November 2025: 2.8% (2.7% forecast; 2.8% previous)
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Euro area Economic Sentiment for December 2025: 96.7 (96.9 forecast; 97.0 previous)
- Euro area Consumer Inflation Expectations for December 2025: 26.7 (23.6 forecast; 23.1 previous)
- Euro area PPI Growth Rate for November 2025: 0.5% m/m (0.4% m/m forecast; 0.1% m/m previous); -1.7% y/y (-1.8% y/y forecast; -0.5% y/y previous)
- Euro area Consumer Confidence for December 2025: -13.1 (-14.6 forecast; -14.6 previous)
- Euro area Unemployment Rate for November 2025: 6.3% (6.4% forecast; 6.4% previous)
- U.S. Challenger Job Cuts for December 2025: 35.55k (89.0k forecast; 71.32k previous)
- Canada Balance of Trade for October 2025: -0.58B (-6.3B forecast; 0.15B previous)
- U.S. Balance of Trade for October 2025: -29.4B (-54.0B forecast; -52.8B previous)
- U.S. Initial Jobless Claims for January 3, 2026: 208.0k (205.0k forecast; 199.0k previous)
- U.S. Wholesale Inventories for October 2025: 0.2% m/m (0.3% m/m forecast; 0.5% m/m previous)
- U.S. Consumer Inflation Expectations for December 2025: 3.4% (3.2% forecast; 3.2% previous)
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Thursday’s session delivered sharply divergent sector performance as geopolitical developments collided with technology sector weakness, while traders positioned cautiously ahead of Friday’s employment report that could reshape Federal Reserve rate cut expectations for 2026.
WTI crude oil emerged as the session’s strongest performer, rallying 4.02% to close around $58.50 per barrel. The surge appeared to correlate with ongoing developments surrounding U.S. operations in Venezuela, with President Trump announcing plans for the U.S. to receive between 30 and 50 million barrels of Venezuelan oil. The rally extended steadily from the early London session through the U.S. close, possibly reflecting both geopolitical supply concerns and speculation about how the administration’s Venezuela policy might affect global oil flows.
U.S. equities posted mixed results in a session marked by pronounced sector rotation. The S&P 500 closed essentially flat, downs slightly to settle at 6,923, while the Dow Jones Industrial Average climbed 0.55% and the Nasdaq Composite fell 0.44%. The session’s narrative centered on President Trump’s announcement that he would propose raising the 2027 military budget to $1.5 trillion—a more than 50% increase from the current $901 billion—citing recent military operations and “troubled and dangerous times.” Defense contractors surged on the news, with Lockheed Martin and Northrop Grumman gaining between 4% and 8% after recovering from Wednesday’s selloff when Trump had threatened to block share buybacks and dividends. Technology shares moved in the opposite direction, with Nvidia declining more than 2% and Apple extending losses to a seventh consecutive session, possibly reflecting profit-taking after recent gains and ongoing concerns about AI infrastructure spending justification. The pronounced divergence between defense and technology highlighted sector-specific dynamics rather than broad market distress.
Gold advanced 0.32% to trade near $4,474 per ounce, building on recent strength. After dipping slightly through the Asia session, the precious metal rallied steadily through the U.S. afternoon session with no specific gold-related catalysts to point to, possibly reflecting safe-haven positioning amid heightened geopolitical activity surrounding Venezuela and Greenland, as well as pre-positioning ahead of Friday’s employment data that could influence Federal Reserve policy expectations.
Bitcoin rose slightly 0.14% to settle around $91,008, extending recent consolidation. The cryptocurrency traded with relatively low volatility throughout the session, possibly reflecting a wait-and-see approach from traders ahead of Friday’s employment report, with neither traditional market drivers nor crypto-specific catalysts providing clear directional momentum.
Treasury yields rose 0.80% to close around 4.19% on the 10-year note. Yields climbed steadily through the London & U.S. sessions despite mixed economic data, possibly reflecting market positioning ahead of Friday’s employment report or concerns about fiscal implications from Trump’s proposed defense spending increase. The stronger-than-expected productivity data (4.9% versus 2.9% forecast) and sharply negative unit labor costs (-1.9%) suggested continued labor market efficiency, which might support the view that the economy can sustain current interest rate levels without generating excessive inflation.
FX Market Behavior: U.S. Dollar vs. Majors
Overlay of USD vs. Majors Forex Chart by TradingView
The U.S. dollar traded with a net bullish lean throughout Thursday’s session, posting gains against all major currencies by the close as traders positioned cautiously ahead of Friday’s December employment report.
During the Asian session, the dollar traded choppy and mostly sideways against major currencies. Weaker-than-expected Japanese wage data (Average Cash Earnings at 0.5% versus 2.3% forecast) provided little direction for yen pairs, while Australian trade data showed a smaller-than-expected surplus. With no major directional catalysts during Asian hours, currency pairs consolidated in relatively tight ranges.
The London session brought modest dollar strength as European data releases crossed the wires. Germany’s Factory Orders surprised sharply to the upside at 5.6% month-over-month versus -0.6% expected, providing a rare positive signal for the struggling German manufacturing sector. However, the euro failed to capitalize on the better data, possibly reflecting traders’ view that one month’s improvement doesn’t reverse the broader weakness narrative. Swiss CPI came in slightly firmer than expected, while euro area data showed marginal improvements in consumer confidence and a lower-than-forecast unemployment rate at 6.3%. The dollar traded with a slight bullish lean through the European morning, possibly as traders began positioning ahead of the U.S. data releases.
The U.S. session saw the dollar strengthen further following the 8:30 am ET economic data releases. Initial jobless claims rose modestly to 208,000 (versus 205,000 expected), suggesting continued labor market resilience without overheating. The headline data, however, came from the trade and productivity reports. The U.S. trade deficit narrowed dramatically to $29.4 billion—the smallest since June 2009 and well below the $54.0 billion forecast—as imports fell to a 21-month low and exports reached a record high. This sharp improvement likely reflected distortions from recent tariff policy volatility rather than sustainable trade dynamics, but the dollar appeared to draw support from the headline beat. More significantly, nonfarm productivity surged 4.9% in the third quarter versus 2.9% expected, while unit labor costs fell 1.9% versus expectations for a 0.8% increase. These figures suggested that U.S. businesses are achieving strong efficiency gains, which could support corporate margins and economic growth without generating wage-driven inflation pressures.
At Thursday’s close, the dollar posted net gains against all major currencies, with its strongest performance coming against the Aussie & Kiwi. The greenback’s resilience throughout the session appeared to reflect cautious positioning ahead of Friday’s December employment report, combined with data suggesting the labor market—while cooling—remains more stable than feared. Traders are likely awaiting cleaner December employment data for more definitive signals on Federal Reserve policy trajectory following the distortions in October and November figures caused by the government shutdown.
Upcoming Potential Catalysts on the Economic Calendar
- Japan Household Spending for November 2025 at 11:30 pm GMT
- China CPI & PPI Growth Rate for December 2025 at 1:30 am GMT
- Japan Leading Economic Index Prel for November 2025 at 5:00 am GMT
- Germany Industrial Production for November 2025 at 7:00 am GMT
- France Industrial Production for November 2025 at 7:45 am GMT
- Swiss Unemployment Rate for December 2025 at 8:00 am GMT
- Swiss Consumer Confidence for December 2025 at 8:00 am GMT
- Euro area Retail Sales for November 2025 at 10:00 am GMT
- ECB Lane Speech at 12:45 pm GMT
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Canada Employment Change for December 2025 at 1:30 pm GMT
- Canada Average Hourly Wages for December 2025 at 1:30 pm GMT
- Canada Unemployment Rate for December 2025 at 1:30 pm GMT
- U.S. Housing Starts for October 2025 at 1:30 pm GMT
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U.S. Nonfarm Payrolls for December 2025 at 1:30 pm GMT
- U.S. Manufacturing Payrolls for December 2025 at 1:30 pm GMT
- U.S. Average Weekly Hours for December 2025 at 1:30 pm GMT
- University of Michigan U.S. Consumer Sentiment Index for January 2026 at 3:00 pm GMT
- Fed Kashkari Speech at 3:00 pm GMT
- Fed Barkin Speech at 6:35 pm GMT
Friday’s calendar is dominated by the highly anticipated December US employment report at 1:30 pm GMT, which should provide cleaner signals on labor market trajectory following the October and November distortions caused by the 43-day government shutdown. Markets are watching closely for evidence of whether the elevated 4.6% unemployment rate reported in November will persist or if hiring momentum improved into year-end. Canada’s simultaneous employment data could spark additional volatility in the Canadian dollar, particularly if it shows divergence from US labor trends.
The University of Michigan consumer sentiment survey at 3:00 pm GMT will provide early insight into January consumer confidence, with inflation expectations closely monitored following Thursday’s rise to 3.4% from 3.2% previously. Fed speeches from Kashkari and Barkin could offer commentary on how policymakers are interpreting recent labor market data and whether the cleaner December figures will influence near-term rate decisions, especially given market pricing of approximately two quarter-point cuts in 2026.
Markets remain sensitive to any signals about the balance between labor market cooling and resilience, particularly as traders position for the first Fed meeting of 2026 later this month against a backdrop of proposed fiscal expansion through defense spending and ongoing geopolitical developments.
Stay frosty out there, forex friends, and don’t forget to check out our Forex Correlation Calculator when planning to take on risk!
