Currency Market News December 11th: Updates & Insights from PathFinder FX

The Pound - Currency Market News December

Its been a rocky period for the Pound as the anxiety on the long build-up to the recent UK Autumn budget took its toll. From August to the end of November, the Pound lost more than 2.5% against the Euro and more than 4% against the Dollar. This weakening was due to the concern around the enormity of the government's borrowing requirements alongside a gloomy growth forecast from the Office for Budget Responsibility (OBR). Chancellor Rachel Reeves eventually delivered what was considered to most, a disappointment, with an increase in the UK’s tax burden to a post-war high and a distinct  lack of any clear growth plans.

Critics took umbrage to the measures taken to strengthen the public finances, which are heavily reliant on plans scheduled for the very end of the forecast period, which critics view as risky and potentially undeliverable. Despite this, the Pound has since recovered ground as the Chancellor did manage to increase the fiscal buffer to around £22 billion, giving the government more short-term credibility with bond markets and with a general view of ‘it could be have been worse’.

Before we get too carried away though, any recovery may be limited by  increasing bets of another interest rate cut from the Bank of England at their next meeting scheduled for 18^th December justified by the combination of falling inflation, weak growth data and increased borrowing (see below), and considering how narrow the vote split was to hold rates at the last meeting.

The Dollar

The Pound has managed a more significant recovery against the dollar as the market is now anticipating that the US Federal Reserve will cut interest rates sooner and possibly more aggressively than previously thought. Recent US economic data, particularly in manufacturing, services, and the labour market, has been weaker than expected, which resulted in the latest interest rate cut last night to 3.75%.

Although this has been largely priced in, there is speculation that interest rates may be cut further in 2026, and crucially, faster than in the UK, leading to a positive yield gap for the Pound. Therefore, the Pound's ability to maintain its recovery against the Dollar rests on the Fed delivering the expected cuts and signalling through the press that more cuts are likely early next year.

The Euro

The European Central Bank are also scheduled to meet on 18^th December, however rumours of a further interest cut were quashed following news Eurozone inflation unexpectedly rose in November. This slight rebound suggests that inflationary pressures in the Eurozone may be more persistent than previously thought, with some senior ECB officials even indicating the possibility of the next move being a rate hike, rather than a cut, if conditions warranted it. Again, this may well limit any potential gains for the Pound however remote this may be seem.

The ECB also warns in its November review that the single currency could be under real sell-off risk similar to the 2011 turmoil as risks mount from inflation, stock bubbles and political uncertainty again. France is now in deep trouble, with the government still spending 6 per cent more of GDP than it collects in taxes every year. Added to this, thanks to the political deadlock which has existed since President Macron’s decision to unwisely call elections earlier this year, there is little sign that the French parliament will ever be able to agree on serious cuts on anything it needs too –because if they did, they would get booted out by the electorate.

Also, the Italian economy was meant to have been fixed by the €400 billion (£334 billion) it got from its partners under the EU’s coronavirus recovery fund in 2020. But the money seems to have mostly been spaffed away on vanity projects, and the economic growth has stalled.

Both countries appear like Greece back in 2010, with rising debts, zero growth, and a political system that is incapable of addressing the issue. Of course, the ECB is taking a risk by warning of trouble and could actually prompt the sell off in markets itself with such a statement.

China & Australia

Elsewhere, we have seen a de-escalation in US-China trade tensions, which has generally been viewed as positive for global risk sentiment. The most significant recent positive news was the face-to-face meeting between the US and Chinese leaders (President Donald Trump and President Xi Jinping) in late October 2025 where they agreed to extend their existing trade truce for one year. This prevents the implementation of further massive rounds of tariffs and temporarily reduces some existing ones. China's overall global trade position remains strong. Its global trade surplus has surpassed $1 trillion for the first time.

This resilience is because Chinese manufacturers are successfully rerouting their goods to the US via third countries (like those in Southeast Asia) or increasing exports to other markets (like the EU, which has seen a surge). For a currency like the Australian Dollar, which thrives on stability and global trade, this truce has proved supportive. In addition to global risk appetite, the Aussie Dollar has received a significant domestic boost from the Reserve Bank of Australia (RBA).

At its most recent meeting, the RBA kept the official cash rate at 3.60% and delivered a distinctly hawkish tone. Governor Michelle Bullock explicitly stated that they do not see rate cuts on the horizon and that the risks to inflation have "tilted to the upside" suggesting their next move could be a hike rather than further cuts. This monetary policy divergence with the UK and US potentially creates an attractive interest rate differential in favour of the Aussie Dollar deeper in to 2026, which is a powerful driver of the currency's strength.

Currency Market News December.

Adam Jordan

Key Dates for Economic Calendar

Dec 12 th - UK GDP figures update

Dec 15th - Australia, Consumer Confidence

China - Retail Sales & Industrial Production

Canada - Inflation figures

Dec 16th UK - Unemployment rate & Manufacturing & Services figures

US - Unemployment figures & Retail Sales

Dec 17th UK Inflation Rate

Germany - Business sentiment