JPY: Bullish Momentum Stalls for USDJPY as FX Rhetoric Ramps Up

GBP adds to the morning's gains on the back of that PMI print, with GBPUSD comfortably clear through yesterday's highs and narrowing the gap with major resistance into 1.3438 - the multi-month high.

• While GBPUSD's gains looks to be the focus, EURGBP is offered and has further to run: price is now testing 50-dma support into 0.8759, and sees selling pressure via both legs after the German PMI miss earlier today.
• Prices aren't moving here on shifting rate expectations (OIS pricing is still locked in for a 25bps BoE cut on Thursday), but on dimming prospects of easy policy through 2026 and beyond. This is often a key part of the curve for EURGBP in particular, which had benefited from growing expectations that the next move from the ECB would be a rate hike, rather than the assumed rate cut.
• What does this mean for EURGBP into year-end? Key short-term support has been defined at 0.8721, the Dec 9 low. A break of this level would signal scope for a deeper retracement, towards 0.8706, a Fibonacci retracement.

Both services and manufacturing PMIs a little consensus. The details are a little concerning for the doves here (and will definitely not be encouraging for the hawks) with costs pressures (inc wages) being passed through as margins are already squeezed. We don't think this changes much for this week's meeting, but if it is repeated over the next few months it adds to the hawks' argument that inflation could be stickier than expected.

Highlights from the press release:

• "Stronger inflationary pressures were signalled at the end of 2025. Input costs increased sharply and at the fastest pace since May. At the same time, prices charged inflation rebounded to the highest seen since August."
• "Survey respondents noted a range of factors pushing up business expenses, including strong wage inflation, higher fuel bills and rising technology costs. Moreover, pressure on margins from stronger input cost inflation contributed to a rebound in prices charged inflation from the five-year low seen in November."
• "A renewed upturn in new order intakes helped to boost private sector output in December. The rise in new business was the strongest for 14 months and mainly reflected a solid improvement in demand across the service economy. Survey respondents commented on improved confidence among clients and a gradual turnaround in sales pipelines. New work from abroad also picked up in December, which ended a 13-month period of decline."

Of note:

GBPUSD 3.86bn at 1.3500 (a bit far, but a poor US Data could help).

EURUSD 1.61bn at 1.1750.

EURUSD 2.63bn at 1.1750 (thu).

USDJPY 3.14bn at 155.00 (thu).

AUDNZD 1.53bn at 1.1410 (thu).

EURGBP 1.27bn at 0.8800 (fri).

USDJPY 2.02bn at 155.00 (fri).

USDCAD 2.65bn at 1.3800/1.3825 (fri).

AUDUSD 2.67bn at 0.6675/0.6700 (fri).

USDZAR 2.71bn at 16.90/17.10 (fri).

• EURUSD: 1.1700 (424mln), 1.1750 (1.61bn), 1.1800 (729mln).
• GBPUSD: 1.3450 (767mln), 1.3500 (3.86bn).
• USDCAD: 1.3750 (935mln).
• AUDUSD: 0.6640 (489mln).