Forex News
- GBP/USD rises as the US Dollar weakens on expectations of two additional Fed rate cuts in 2026.
- Traders are likely to observe the FOMC December Meeting Minutes due on Tuesday.
- The BoE is expected to ease gradually but sees limited room for further cuts near neutral rates.
GBP/USD gains after a gap-down open, trading around 1.3510 during the Asian hours on Monday. The pair gains ground as the US Dollar (USD) faces challenges, which could be attributed to growing expectations of two more rate cuts by the Federal Reserve (Fed) in 2026.
Traders are likely to focus on the Federal Open Market Committee (FOMC) December Meeting Minutes due on Tuesday, which may shed light on internal policy debates shaping the Fed’s outlook for 2026.
The US central bank lowered the federal funds rate by 25 basis points (bps) at the December meeting, bringing the target range to 3.50%–3.75%. The Fed delivered a cumulative 75 bps of rate cuts in 2025 amid a cooling labor market and still-elevated inflation.
The CME FedWatch tool shows an 81.7% probability of rates being held at the Fed’s January meeting, up from 77.9% a week earlier. Meanwhile, the likelihood of a 25-basis-point rate cut has fallen to 18.3% from 22.1% a week ago.
The latest weekly US labor market data sent mixed signals. Initial Jobless Claims declined to 214K from 224K in the prior week, beating the 223K market forecast. Meanwhile, Continuing Jobless Claims rose to 1.923 million from 1.885 million, while the four-week average of Initial Claims edged lower to 216.75K from 217.5K.
The Bank of England (BoE) lowered the policy rate by 25 bps to 3.75% in December, with a close 5–4 vote highlighting persistent inflation concerns. While inflation cooled to 3.2% in November, it remains well above the BoE’s 2% target. UK GDP expanded by 0.1% in the third quarter, meeting expectations, but the BoE projects flat growth in the final quarter.
BoE Governor Andrew Bailey signaled that interest rates are expected to ease further in a gradual manner, but cautioned that the scope for additional cuts is limited as rates approach their neutral level. Any moves beyond the latest cut are likely to be finely balanced and strongly driven by incoming data.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
US President Donald Trump said that he made “a lot of progress” in talks with Ukrainian President Volodymyr Zelenskiy over a possible peace deal, Bloomberg reported on Sunday. However, Trump stated that there’s no apparent breakthrough on the flashpoint issue of territory and it might take a few weeks to get it done.
Market reaction
At the time of writing, the West Texas Intermediate (WTI) is trading 0.78% higher on the day to trade at $57.10.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
China signaled a more proactive fiscal stance in 2026, indicating sustained government support to drive growth in a challenging external environment, Bloomberg reported on Sunday.
A statement from the Ministry of Finance said that Beijing aims to expand targeted investment for priority sectors such as advanced manufacturing, tech innovation and development of human capital. The announcement followed a year-end working meeting to set next year’s fiscal policy priorities.
Market reaction
The AUD/USD pair is up 0.02% on the day to trade at 0.6716 as of writing.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
The Bank of Japan (BoJ) published the Summary of Opinions from the December monetary policy meeting, with the key findings noted below.
Key quotes
One member said although policy rate will remain deeply negative, Bank of Japan must carefully monitor impact of rate hike on economy and markets.
One member said BOJ must increase rates steadily to avoid being behind the curve.
One member said BOJ should scrutinize economic, price, and financial developments when adjusting degree of monetary policy rather than having a specific set pace in mind.
One member said Japan real policy rate is lowest globally so appropriate to hike considering impact on inflation through FX market.
One member said maintaining real rates at levels differing from equilibrium could cause distortions in resource distribution and affect sustained growth.
One member said government stimulus package could support economic growth for the next one to two years.
One member said real wages likely to turn positive in 1st half of next year.
Cabinet Office representative acknowledges BOJ decision as aimed at stably achieving price target, though must be vigilant to developments in capital expenditure and corporate profits.
Cabinet Office representative said hope Bank of Japan guides appropriate policy according to Bank of Japan law, government-Bank of Japan joint statement.
Market reaction
Following the BoJ’s Summary of Opinions, the USD/JPY pair is down 0.28% on the day to trade at 156.06 as of writing.
This section was published on December 28 at 22.37 GMT as a preview of the BoJ Summary of Opinions release.
The BoJ Summary of Opinions Preview
The Bank of Japan (BOJ) will publish its report on Sunday at 23:50 GMT. This report includes the BOJ's projection for inflation and economic growth. It is scheduled 8 times per year, about 10 days after the Monetary Policy Statement is released.
How could the BoJ Summary of Opinions affect USD/JPY?
USD/JPY trades flat on the day in the lead up to the BoJ Summary of Opinions. Nonetheless, the possibility that a new Federal Reserve (Fed) Chair to replace Jerome Powell could look to cut rates next year might weigh on the US Dollar (USD) against the Japanese Yen (JPY).
The first upside barrier for the USD/JPY pair is seen at the December 9 high of 156.95. The next resistance level emerges at the December 22 high of 157.70, en route to the November 20 high of 157.89.
To the downside, the December 26 low of 155.96 will offer some comfort to buyers. Extended losses could see a drop to the December 19 low of 155.44. The next contention level is located at the December 17 low of 154.51.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
- EUR/USD strengthens to near 1.1775 in Monday’s early Asian session.
- Growing expectations for the Fed to implement rate cuts in early 2026 weigh on the US Dollar.
- Money markets assign only a limited chance to an ECB rate cut in early 2026.
The EUR/USD pair trades in positive territory around 1.1775 during the early Asian session on Monday. The prospect of a US Federal Reserve (Fed) rate cut in 2026 weighs on the US Dollar (USD) against the Euro (EUR). Markets brace for US President Donald Trump to nominate a Fed chair to replace Jerome Powell, whose term ends in May. Later on Monday, the US Pending Home Sales report for November will be released.
The US central bank cut the federal funds rate by 25 basis points (bps) at its December policy meeting, bringing the target range to 3.50%-3.75%. The Fed delivered a cumulative 75 bps of rate cuts in 2025 amidst a cooling labor market and slightly elevated inflation. Markets are also pricing in two additional rate reductions next year, which could drag the Greenback and create a tailwind for the major pair.
The possibility that a new Fed Chair to replace Jerome Powell could look to cut rates next year might contribute to the USD’s downside. Trump said that he expects the next Fed chairman to keep interest rates low and never “disagree” with him.
Across the pond, the European Central Bank (ECB) held interest rates steady earlier this month and signaled they would likely remain so for some time. ECB President Christine Lagarde noted that the central bank cannot provide forward guidance on future rate moves due to high uncertainty, emphasizing a data-dependent, meeting-by-meeting approach.
The money markets have priced in for a 25 bps interest rate cut by the ECB in February 2026, currently remaining below 10%. Signals that the ECB rate cut cycle is ending could underpin the shared currency in the near term.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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