GBP: Sterling consolidates, supported by risk and improving domestic tone

Sterling is holding close to key technical objectives and remains consistent with the late-year uptrend. The backdrop remains supportive, with equities ending the year strongly and risk-sensitive FX staying well bid.

GBP/EUR reached a two-month high of 1.1482 on 24 December before slipping back towards 1.1465. The cross had trended lower through much of 2025 on concerns over the UK outlook, reinforced by a notable slowdown around the 26 November Budget. With that event risk now behind the market, survey evidence pointing to firmer business confidence has helped sterling recover from November’s lows.

GBP/USD printed 1.3533 last week, a four-month high, and has since consolidated around 1.3488. The near-term bias remains for further upside if the dollar stays on the back foot and risk appetite holds.

USD: Fed minutes and 2026 easing expectations in focus

The dollar is attempting a modest bounce in quiet trade, with EUR/USD easing towards 1.1770 after topping just above 1.1800 last week. With the calendar largely empty, price action continues to reflect positioning and the market’s 2026 rate-cut narrative rather than fresh data.

Attention turns to the minutes from the Federal Reserve’s December meeting, where the Fed delivered a 25bp cut and signalled scope for further easing in 2026. The market remains comfortable with at least two cuts next year as labour conditions soften, keeping the broader USD tone biased lower into the turn of the year.

EUR: Pullback from highs, but policy divergence limits USD upside

The euro is easing from the three-month highs seen last week, though the broader tone remains supported by relative monetary policy expectations. The European Central Bank is viewed as comparatively hawkish versus the Fed, which the market expects to cut further next year, limiting scope for a sustained USD rebound.

Headlines also remain a swing factor. Comments from US President Trump following discussions with Ukrainian President Volodymyr Zelenskyy have kept sentiment supported, though key elements of a peace plan, including the future of the Donbass region, are still unresolved.

Looking ahead

• Fed December minutes as the main event risk this week.

• With data light, markets remain headline-driven, especially on Ukraine-related developments and broader risk sentiment.

• If equities stay firm, GBP and EUR should remain supported versus USD, with consolidation rather than reversal the base case into year-end.