Forex Market Forecast for December 2025

Key Points

• Federal Reserve Rate Decision (December 10): The Federal Reserve rate decision is being closely assessed, with the consensus, including analysts at UOB, now anticipating a 25 basis point (bp) rate cut.
• Bank of England Rate Decision (December 18): Following the Budget announcement, the probability of a BoE rate cut has increased. Markets are expecting a 25 bp cut (to 3.75%), driven by easing fiscal fears and a desire to support the slowing UK economy.
• Bank of Japan Rate Decision (December 19): After Governor Ueda’s hawkish tone, the market is on alert for a potential policy shift. Analysts at UOB expect a 25 bp rate hike (to 0.75%), but with low confidence (“a coin toss”).

US Dollar (USD)

The US dollar enters December, with markets pricing in a US Federal Reserve rate cut. This has prompted the dollar to decline.

The focus shifts entirely to the upcoming FOMC meeting on December 10. Analysts at UOB are calling for a 25 bp cut to 3.75% as signs of labor market softening outweigh earlier strong job reports. 

ING suggests that the dollar’s recent correction has more to do with the convergence towards lower U.S. rates than geopolitics. They have switched to a neutral bias for the near-term, but a December rate cut or soft NFP data could see the DXY Index decline.

Key Levels

• EUR/USD: Higher – 1.1722, Lower – 1.1475
• GBP/USD: Higher – 1.3300, Lower – 1.3020
• USD/JPY: Higher – 158.00, Lower – 154.70

Euro (EUR)

The euro maintains its upward potential, supported by its more stable central bank outlook. The European Central Bank (ECB) is widely expected to keep its Deposit Facility Rate unchanged at the December 18 meeting, pushing back the base case for further easing into the first quarter of 2026.

This divergence in central bank policy, an expected Fed cut versus an ECB hold, is the primary driver for EUR/USD appreciation. 

ING analysts remain bullish on the pair, anticipating a return to 1.17 and potentially reaching their 1.18 year-end target. 

This move is supported by seasonal factors and the anticipated soft U.S. data in December. The EUR will also be sensitive to the Eurozone’s flash inflation rate (Dec. 2).

“For now, EUR/USD bulls like us should be content with the return to 1.16. We think 1.17 can be reached with the pair’s short-term undervaluation being trimmed, and our 1.18 year-end target with seasonal factors and some soft US data in December,” wrote ING.

Key Levels

• EUR/USD: Higher – 1.1722, Lower – 1.1475
• EUR/GBP: Higher – 0.8890, Lower – 0.8670

British Pound (GBP)

Sterling rallied at the end of November following the Autumn Budget, which was welcomed by markets for avoiding unexpectedly heavy tax hikes and offering higher fiscal headroom. 

Moody’s Analytics noted that the budget should help restore some predictability to UK fiscal policy. This helped mitigate the previous domestic concerns that weighed heavily on the currency.

However, the focus now shifts entirely to the BoE rate decision on December 18. The Budget’s result, coupled with inflation falling to 3.6% in October, has increased the likelihood of a rate cut. 

UOB and a broad market consensus anticipate a 25 bp cut to 3.75%. ING believes that while the budget may have kept the pound afloat temporarily, the expected cuts (three over the next seven months) are likely to send EUR/GBP higher. Another break below the key 1.3140 support in GBP/USD remains a key downside risk should the BoE cut rates.

Key Levels

• GBP/USD: Higher – 1.3300, Lower – 1.3020
• EUR/GBP: Higher – 0.8890, Lower – 0.8670

Japanese Yen (JPY)

Despite the weaker USD in November, the USD/JPY continued to rally, closing the month at 156.12. However, Japan’s finance minister Satsuki Katayama said recently that the rapid yen weakening is “clearly not driven by fundamentals”.

According to a Reuters report, Katayama also stated that currency interventions remain possible to address the strong volatility and speculative moves in the yen.

Meanwhile, analysts at Morgan Stanley said in late November that they believe the USD/JPY will fall to 140 in the near-term, before climbing back to 147 by the end of the year.

Key Levels

• USD/JPY: Higher – 158.00, Lower – 154.70
• EUR/JPY: Higher – 182.00, Lower – 173.80