🇬🇧 GBP Sterling Under Pressure as Weak UK Data Dents Momentum
Sterling slipped against both the Euro and the Dollar last week after a run of softer UK data. The economy contracted by 0.1% in October in the latest monthly GDP release, missing forecasts for a 0.1% expansion.
On an annual basis, growth eased to 1.1% in the year to October, also below expectations of 1.4%. While GBP has risen versus both EUR and USD since late November, these disappointing figures risk stalling that momentum, particularly against the Euro.
Markets are now fully pricing a Bank of England rate cut this week in response to a cooling economy. If further weak data follow, expectations for additional cuts in 2026 are likely to build, putting downward pressure on UK gilt yields and, by extension, the Pound. At the start of the week, GBP/USD is holding above 1.33, while GBP/EUR is hovering just under 1.14.
🇺🇸 Dollar Vulnerable as Fed Easing Outlook Narrows Yield Advantage
USD looks vulnerable to further downside as shifting central-bank dynamics begin to chip away at its yield advantage. The Federal Reserve cut rates by 25 basis points this week and, importantly, did little to meaningfully challenge market expectations for additional easing next year.
Chair Jerome Powell acknowledged growing sensitivity around the US labour market, signalling that the Fed is increasingly balancing employment risks alongside the inflation outlook. If unemployment continues to drift higher while inflation remains contained, the case for further rate cuts strengthens, likely pulling US bond yields lower and dragging on the dollar.
The Fed’s latest projections, summarised in the dot plot, showed policymakers’ expected path for the federal funds rate was broadly unchanged. Even so, the guidance reinforces market pricing for at least one more reduction, with the timing increasingly skewed toward early 2026.
🇪🇺 Euro Ending 2025 Strong as ECB Outlook Fuels Year-End Rally
Last week proved a strong one for the Euro. The single currency gained around 0.5% versus Sterling and almost 1% against the US Dollar, leaving it on track to end 2025 in positive territory.
With the Euro emerging as one of the best performers among the major currencies over the past week, a year-end rally is increasingly plausible and that momentum has, in turn, capped GBP/EUR’s upside.
A key support has been shifting interest-rate expectations and a weak Dollar, a common theme of 2025. Markets now assign little probability to near-term ECB easing, and some are even starting to price the possibility of rate hikes in 2026.
This Weeks Key Market Moving Data
This week’s standout US release is non-farm payrolls, alongside the delayed employment data that has been held up by the backlog created during the federal government shutdown. Central bank decisions from the Bank of England and the European Central Bank on Wednesday will be closely watched for updated guidance on the rate outlook.
Tuesday 16th December
US Nonfarm Payrolls Release
The US Nonfarm Payrolls report is one of the most influential indicators of American economic health, showing whether job creation is accelerating or cooling. Because it heavily shapes Federal Reserve interest-rate expectations, the release can trigger significant moves in the US dollar as markets react to the labour market’s strength or weakness.
Wednesday 17th December
Bank Of England Interest Rate Decision
The Bank of England’s policy decision this week will be a key focus for sterling markets, with investors looking for any changes to the Committee’s assessment of inflation persistence and domestic demand. For FX, the vote split and accompanying guidance will shape expectations for the pace of easing in 2026, influencing UK front-end yields and driving near-term moves in GBP crosses.
European Central Bank Interest Rate Decision
The European Central Bank’s policy decision this week will be closely analysed for confirmation that policymakers remain comfortable maintaining restrictive settings as inflation pressures stabilise. Markets will closely look for guidance on the 2026 policy path, with any change in the expected rate trajectory likely to be reflected in EUR pricing and relative performance against peers.
