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

The Blog Team
Dec 11, 2025
4 min read

Updated: 4 days ago

The Pound - Currency Market News December

It's been a rocky period for the Pound. The anxiety surrounding 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 over 4% against the Dollar. This weakening stemmed from concerns about the government's borrowing requirements and a gloomy growth forecast from the Office for Budget Responsibility (OBR).

Chancellor Rachel Reeves delivered what many considered a disappointment. The increase in the UK’s tax burden reached a post-war high, and there was a distinct lack of clear growth plans. Critics voiced their concerns about the measures intended to strengthen public finances. They argued that these plans rely heavily on projections set for the very end of the forecast period, which they view as risky and potentially undeliverable.

Despite this, the Pound has since regained some ground. The Chancellor managed to increase the fiscal buffer to around £22 billion. This move has given the government more short-term credibility with bond markets. The general sentiment is that “it could have been worse.”

Interest Rate Expectations

Before we get too carried away, any recovery may be limited. There are increasing bets on another interest rate cut from the Bank of England at their next meeting scheduled for December 18. This expectation is justified by falling inflation, weak growth data, and increased borrowing. The narrow vote split to hold rates at the last meeting adds to the uncertainty.

The Dollar

The Pound has managed a more significant recovery against the Dollar. The market anticipates 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 labor market, has been weaker than expected. This led to 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. Crucially, these cuts may happen faster than in the UK, creating a positive yield gap for the Pound. Therefore, the Pound's ability to maintain its recovery against the Dollar depends on the Fed delivering the expected cuts and signaling through the press that more cuts are likely early next year.

The Euro

The European Central Bank is also scheduled to meet on December 18. However, rumors of a further interest cut were quashed following news that Eurozone inflation unexpectedly rose in November. This slight rebound suggests that inflationary pressures in the Eurozone may be more persistent than previously thought. Some senior ECB officials even indicated that the next move could be a rate hike, rather than a cut, if conditions warrant it.

This situation may limit any potential gains for the Pound, no matter how remote this may seem. The ECB warns in its November review that the single currency could be at real sell-off risk, similar to the turmoil seen in 2011. Risks are mounting from inflation, stock bubbles, and political uncertainty. France is in deep trouble, with the government spending 6% more of GDP than it collects in taxes each year.

Thanks to the political deadlock since President Macron’s decision to call elections earlier this year, there is little sign that the French parliament will agree on necessary cuts. If they did, they risk being ousted by the electorate.

The Italian economy was supposed to have been fixed by the €400 billion (£334 billion) it received from its partners under the EU’s coronavirus recovery fund in 2020. However, most of that money seems to have been wasted on vanity projects, and economic growth has stalled.

Both countries resemble Greece back in 2010, facing rising debts, zero growth, and a political system incapable of addressing these issues. The ECB is taking a risk by warning of trouble, which could actually prompt a sell-off in markets.

China & Australia

Elsewhere, we have seen a de-escalation in US-China trade tensions. This development is generally viewed as positive for global risk sentiment. The most significant recent news was the face-to-face meeting between US and Chinese leaders (President Donald Trump and President Xi Jinping) in late October 2025. They agreed to extend their existing trade truce for one year. This agreement 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 due to Chinese manufacturers successfully rerouting their goods to the US via third countries 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. 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 favor of the Aussie Dollar deeper into 2026. This situation is a powerful driver of the currency's strength.