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The pound strengthened ahead of the Christmas pause.
Residual momentum from last Thursday’s interest rate cut helped sterling start the shortened week well. With a threadbare Christmas schedule of economic news, the pound strengthened by almost half a cent against both the euro and the US dollar.
The geopolitical picture also had a major part to play in Monday’s trading. Reports that Israel was planning an attack on Iran precipitated a flight toward safe-haven assets, although that did not include the US dollar, which has its own shifting monetary policy outlook to contend with and the possibility of a confrontation with Venezuela.
A softer dollar left the door wide open for gold to benefit from those flows and set a fresh record above $4,400 per troy ounce. The defensive asset does well at times of market stress as it tends to hold its value through conflicts and other disruptions.
China has slapped tariffs of up to 42.7% on some dairy products from the eurozone. That decision came after strains in China’s domestic market, which had previously been countered by retaliatory EU levies on electric vehicles.
Ultimately, yesterday was a subdued session across financial markets. The majority of bank staff and investors in the Western world have shut their laptops until the New Year amid a slowing economic indicator calendar. Focus will turn almost exclusively to geopolitical developments following this afternoon’s growth data from across the Atlantic.
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GBP: Bank splits
An unexpectedly tight vote on Threadneedle Street wasn’t the outcome many economists had predicted. Regardless, the pound has benefitted from renewed questions over the outlook for next year and looks set to end 2025 on a high.
GBP/USD: the past year
EUR: Schnabel says rates to remain stable
The European Central Bank’s (ECB) Isabel Schnabel said that she expected interest rates to stay in a stable range in the near future. The euro traded in a narrow range against its main rivals on Monday as it stabilised following the last ECB meeting of the year.
GBP/EUR: the past year
USD: Doves gain ground
There is a growing sense that the Federal Reserve might move faster in cutting rates next year than expected. At present, the chances of a rate cut in January seem slim. But that hasn’t stopped the US dollar’s slide as markets price in a more dovish position for the 11 subsequent months of 2026.
EUR/USD: the past year
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