Where are exchange rates as we reach mid-December?
It’s actually been a bit of a purple patch for the pound following the Budget. Somewhat depressingly the failure of Trump’s attempted peace deal in Ukraine weakened the euro and helped sterling to a six-week high.
But in case you thought the festive season might calm the markets, we are also in midst of interest rate season. So what’s going on?
GBP: Pound gains and holds
Sterling has had a good few days, having gained on the US dollar and euro in the first week of December and holding on to that.
There were a few reasons for the gain, including a better than expected result for the Purchasing Managers Index (PMI) – at least in services. The construction industry is at its weakest for more than five years.
We’re coming into a busy period for economic data, and all just ahead of the Bank of England’s (BoE) next interest rate decision on 18 December. A quarter point cut is expected here, like in the US this week, but we have a lot of data for the Monetary Policy Committee to chew through before then. .
GBP/EUR past year
EUR: Mixed picture in quiet period
The euro has been benefitting from the Eeuopean Central Bank’s early-cut-then-pause stance. Indeed there have been indications that the ECB is more likely to raise interest rates in 2026 than lower them. Obviously that will depend on the economic picture through the year, but would strongly suggest a strengthening euro at the expense of sterling and the US dollar.
Inflation is holding steady at 2.1% and economy growth is of 0.2% in the third quarter of 2025 was a little insipid, but bearing in mind US tariffs, could be worse.
Nearer-term, the bloc’s Purchasing Managers Indexes (PMIs) and national data (especially from its biggest economy – Germany) continues to steer EUR day-to-day. The good news has been improving PMI across the eurozone, with early positive readings being upgraded even more favourably in their final iteration.
EUR/USD past year
USD: Dollar weakened as Fed cuts rates
It was entirely predictable – and predicted – that the US Federal Reserve would cut interest rates at its last meeting of the year, but despite the pack of surprise the dollar still lost between half and one percent in the hours afterwards.
The Federal Open Market Committee (FOMC) voted nine-to-three to deliver another 25-basis point cut, but it was a three-way split vote with one opting for a 50 point cut and two for no cut at all. The first such split for six years highlights the upcoming problems at the Fed with the cautious chairman Jerome Powell soon to leave his post and probably be replaced with a Trump yes-man intent on sharper cuts.
Other than that there was a positive jobs report, with 440,000 new jobs opening in onemonth.
USD/GBP past year
What’s coming up: key events to watch
Looking ahead, several important economic events could influence exchange rates over the next couple of weeks:
- USA, Federal Reserve interest rate decision (10 December)
- UK, GDP (12 December): Any signs of growth?
- UK, Unemployment and earnings (16 December)
- Global, Purchasing Managers Index (16 December)
- USA, Non-Farm Payrolls (16 December)
- UK, Inflation (17 December)
- UK and EU, Interest rate decisions (18 December)
How to protect your own budget
Exchange rates can shift quickly – and when you’re moving large sums for a property purchase, that can mean thousands gained or lost. Speak to a currency specialist to discuss tools like forward contracts, which let you lock in an exchange rate for the future, shielding your budget from adverse movements.
