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The British pound will come under pressure against the euro next year as the UK economy suffers rising unemployment.

Given this, strategists at CIBC Capital Markets make buying EUR/GBP a top trade for 2026, judging that a recent pound sterling rebound will falter.

“Sterling witnessed something of a relief rally in the wake of Chancellor Reeves second Budget; the uptick in the fiscal headroom was greeted by some relief by Gilt investors,” says CIBC in a strategy note detailing top trades for the coming year.

“However, we would note the downgrade to GDP assumptions, deterioration in labour market trends and or substantive CPI base effects which are set to impact into Q2,” it adds.

EUR/GBP is has fallen during November and December as the 2025 selloff unwinds. Part of that weakness was linked to fears for UK economic growth and fiscal stability owing to the November budget.

The contents of the budget were well telegraphed by a series of leaks from the Treasury, and with no real surprises being announced on the day, the market has covered some of its bets against the pound.

For now, GBP/EUR upside is seen as a counter-trend bounce.

In our Pound to Euro Week Ahead Forecast, we note near-term momentum remains in favour of further upside, fulfilling earlier expectations for a year-end post-budget bounce in the pound.

However, upside will ultimately be limited by unhelpful fundamentals. CIBC’s analysts cite the following headwinds:

1. Slower GDP trajectory
2. Subdued gains in real disposable incomes
3. A rising tide of unemployment (dragging on earnings growth)

This “supports a faster pace of BoE adjustment; we assume 50bps of easing by the end of Q1, beyond the current 39bps priced by the market,” says CIBC.

Above: The Bank of England will cut interest rates faster than anticipated, warns CIBC.

“A more aggressive BoE profile supports the notion of EUR/GBP gains, given we expect the eurozone to benefit from German fiscal expansion, defence spending under the ReArm process in addition to ECB inertia, given policy remains in a good place,” it adds.

CIBC economists consider 3.50% to be the landing zone for Bank Rate.

This “supports EUR/GBP heading back towards 2023 highs.” The EUR/GBP high is 0.8865 (Nov. 14), giving a GBP/EUR low of 1.1280.

GBP/EUR Year-End 2025

Built from leading bank forecasts.

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Against the Tide

Weak GBP is a consensus expectation for 2026, but some analysts are taking the other side of that bet, suggesting lower UK interest rates could be supportive.

“Pessimism toward the UK is too high in our view. We believe the Bank of England now has more scope to cut rates, and retail sales appear to be on an uptrend. Economic growth could surprise positively in 2026 and support UK markets,” says Brian Levitt, Chief Global Market Strategist at Invesco.

Bank of America is also contrarian, saying the pound will outperform peers in 2026, as consensus positions tend to fizzle out early in the year.

With the budget having passed without drama, the pound is at a fork in the road: does that risk premium dissipate or does it become entrenched?

Bank of America thinks the former is the most likely: that premium can continue to lift, and the pound will recover as a result.

“This Budget has the buy-in from the OBR (who prepare macro forecasts for the Government) and the Chancellor has reinforced the commitment to keep the Fiscal Rule and raise the Fiscal Headroom. These are important anchors which should lead to a relief rally in GBP as the release valve of event risk has passed,” reads Bank of America’s year-ahead outlook.

BofA forecasts EUR/GBP at 0.84 by year-end, which gives a pound to euro conversion of 1.19.

The November data followed BoJ Governor Kazuo Ueda’s optimistic economic outlook. He stated that the economy will return to growth in the fourth quarter and beyond, reinforcing his recent bullish pivot. Last week, Governor Ueda supported a rate hike, citing strong wage growth, fading US tariff risks, and FX weakness.

While expectations of a BoJ rate hike are strengthening yen demand, the FOMC interest rate decision, FOMC Economic Projections, and Fed Chair Powell’s press conference will dictate buyer appetite for the US dollar.

FOMC Interest Rate Decision Looms

Later on Wednesday, the Fed will take center stage as investors await its highly anticipated interest rate decision and Economic Projections. Economists expect the Fed to lower interest rates by 25 basis points, with the CME FedWatch Tool giving an 87.6% chance of a rate cut.

Barring an unexpected hold or a surprise 50-basis-point cut, the market focus will be on the Economic Projections and the dot plot on rate expectations. Notably, the chances of a Q1 2026 rate cut declined overnight.

The FOMC Committee has divided into two camps in recent months. On one side, members support further policy easing to bolster a cooling labor market, while on the other, voters view sticky inflation as a reason to pause further cuts. Given the division among voting members, a hawkish cut looks likely, where the Fed downplays further easing in the near-term, but remains data dependent.

Economic Projections and Dot Plot to Spotlight the Greenback

The Economic Projections and dot plot will provide the crucial insights into the Fed’s outlook and potential rate path. For context, the September dot plot projected a 3.25%-3.50% Fed Funds Rate (FFR) by the end of 2026.

A 25-basis-point rate cut today would leave two further rate cuts to align with the September dot plot, the baseline for traders. A dovish Fed rate cut would be a lower FFR by the end of 2026, while a hawkish cut would be a higher 2026 FFR forecast.

Notably, the projections will be based on outdated inflation and jobs data, given the cancellation of October data. The absence of October’s government reports may downplay the influence of inflation, unemployment, and GDP projections on US dollar demand. However, given the USD/JPY sensitivity to September’s JOLTs job openings, the pair will be exposed to heightened volatility.

Meanwhile, there is also a potential announcement on bond purchases (quantitative easing).

With increased uncertainty about the post-December Fed rate path, the short- and medium-term outlook hinges on the Fed and the BoJ’s interest rate decisions and policy outlooks. Despite the uncertainty, the Fed’s easing and the BoJ’s tightening support a bearish medium-term outlook for USD/JPY.

Technical Outlook: USD/JPY on a Downward Trajectory

Looking at the daily chart, USD/JPY traded above the 50-day and 200-day Exponential Moving Averages (EMAs), signaling a bullish bias. However, fundamentals have begun to shift from the technical trend, supporting a bearish medium-term outlook.

A break below the 155 support level would bring the 50-day EMA into play. If breached, the 153 support level would be the next key support. Significantly, a sustained fall below the 50-day EMA would signal a bearish trend reversal, supporting a near-term drop toward 150.

Created on December 10, 2025

• The USD/JPY pair rallied firmly ahead of the Federal Reserve’s rate decision, with traders watching both the expected cut and the press-conference guidance.
• A break above ¥158 could open a move toward ¥160, while dips remain favored for buying.

The US dollar has rallied quite nicely during the trading session on Tuesday, as it looks like we are ready to continue going higher. That being said, though, you have to understand that the Federal Reserve has an interest rate decision on Wednesday, which will have a major influence on this pair. Ultimately, keep in mind that although an interest rate cut is expected, a lot of what people will be paying attention to is the press conference and what the Federal Reserve is likely to do going forward.

Key Levels Into the Fed Decision

With this being the case, it’s possible that the market could go looking to the 158 yen level, breaking above there, then opening up the possibility of a much bigger move. But as things stand right now, I think you have to understand that Wednesday will be pretty messy, but once we get above that 158 yen level, and maybe it happens Wednesday, I don’t think it will happen right away, but it could. Then we’re looking at 160 yen before it’s all said and done.

I have no interest whatsoever in shorting this pair, and I look at dips as potential buying opportunities, but I also recognize that you have to be somewhat cautious here because of the volatility. You don’t want to get taken out of the market as machines are reacting to the interest rate decision or the statement.

All things being equal, as long as we don’t break down below the low price of Friday, I think the uptrend is very much intact and would even extend that maybe as low as 153 yen. Anything above there, it’s still got a shot to go higher. And I think ultimately if we can get above 158, to the 160 yen level, this thing could really take off. We’ll just have to wait and see what Jerome Powell has to say.

Want to trade our USD/JPY forex analysis and predictions? Here’s a list of forex brokers in Japan to check out.

Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

– Written by


Tim Boyer

STORY LINK GBP to USD Forecast: Pound Sterling Rangebound While Fed Uncertainty Builds

The Pound to US Dollar exchange rate (GBP/USD) drifted through Tuesday’s session with little conviction, as traders positioned themselves cautiously ahead of Wednesday’s Federal Reserve interest rate decision.

At the time of writing, GBP/USD was trading around $1.3323, showing minimal movement from the day’s opening levels.

The US Dollar (USD) traded without clear direction on Tuesday, with markets unwilling to commit ahead of the Federal Reserve’s imminent policy announcement.

While the Fed is widely expected to deliver a 25bps rate cut, the real uncertainty lies in the central bank’s forward guidance. Investors remain unclear on how aggressively — or cautiously — policymakers intend to ease monetary conditions in the coming months.

Split views within the Federal Open Market Committee (FOMC) have contributed to this uncertainty. Some officials warn that stubborn inflation limits the scope for meaningful cuts, while others point to signs of cooling in the US labour market as evidence that additional policy support is needed.

This lack of consensus has left traders hesitant, keeping the Dollar subdued as they await clearer direction from the Fed.

The Pound (GBP) spent much of Tuesday moving sideways, with a lack of fresh UK economic data leaving traders with little impetus to reposition.

A broadly indecisive market mood added to the inertia. With sentiment still fragile, the increasingly risk-sensitive Pound found itself confined to a tight trading band.

GBP/USD Forecast: Fed Decision to Steer Direction

Focus now turns to Wednesday’s Federal Reserve announcement, where policymakers are expected to deliver a 25bps rate cut. However, the key market catalyst will be the tone of Chair Jerome Powell’s accompanying commentary.

If Powell strikes a firm note — signalling reluctance to accelerate the pace of easing despite political pressure from President Donald Trump — the US Dollar may find renewed support.

Conversely, if Powell hints that the FOMC is becoming more open to deeper or more frequent rate cuts in the months ahead, USD could weaken further.

With no major UK releases scheduled midweek, the Pound is likely to remain without a strong domestic catalyst, leaving GBP/USD movement highly sensitive to US monetary policy signals.

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USD/JPY Rises Amid Yen Weakness Post-Earthquake and with Central Banks in Focus

is rising amid yen weakness. The yen is the weakest G10 currency, falling against its major peers.

The yen fell yesterday and is extending those losses today, albeit to a lesser extent, after coming under pressure following an earthquake in northeastern Japan on Monday, which briefly raised concerns about economic disruptions. The earthquake measured 7.6 on the Richter Scale, and Tsunami warnings have now been lifted.

A downward revision to Japan’s Q3 also weighed on the currency, supporting PM Takaichi’s stance to boost growth, while also complicating the outlook for the BoJ.

The central bank is expected to raise next week amid a gradual path to normalization. While recent hawkish comments from BoJ Ueda have helped the yen recover from an 8-month low versus the , the yen still trades over 5% lower since the start of October, pressurised by PM Takaichi’s huge spending plans, which have sent Japanese bond yields to multi-decade highs.

Any meaningful recovery in the yen would require not just the BOG to follow through with stronger guidance but also for policymakers to demonstrate fiscal prudence.

This weakness in the yen is more evident against other yen crosses, with the JPY trading at a 16-month low versus , a 35-month low versus the AUD, and at a 17-month low versus the , particularly after the hawkish RBA held overnight.

Meanwhile, the USD is unchanged ahead of tomorrow’s FOMC , where the central bank is expected to cut rates by 25 basis points, which is broadly priced in. Attention will be on Powell’s tone and the dot plot for clues over what comes next.

Today, and 4-week average employment change will be in focus, but moves in the USD could remain muted ahead of tomorrow’s decision.

Near-term Worries of hawkish Fed cut and a dovish BoJ hike are supportive of USD/JPY.

USD/JPY Forecast – Technical Analysis

USD/JPY broke out of the multi-month rising channel, hitting an 8-month high of 157.90 before easing lower to the 155 support zone. The price has recovered from the 155 support zone and is heading higher, testing the 156.40 resistance level. The long-term uptrend remains intact.

Buyers will look to rise above 156.40 to extend gains to 157.90 and beyond, creating a higher high towards 160.00.

Support is seen at 155. A break below here opens the door to 153, the October 8 high, and the 50 SMA.

DAX Rises to an almost 1-Month High

The is rising for a fourth straight session, pushing to a nearly monthly high of 24,180.

The rise in Europe follows solid gains in the US after U.S. President Trump said NVIDIA (NASDAQ:) should be allowed to export its top H200 chips to China. However, there is also an element of caution ahead of tomorrow’s FOMC decision.

The Fed is expected to cut rates by 25 basis points; however, the main focus will be on what Fed Powell says, given the divided central bank, and on how many rate cuts the dot plot projects for 2026.

Markets are predicting 77 basis points of easing through the end of 2026, meaning two more rate cuts after the December reduction remain on the table. The broad expectation is for a semi-hawkish tone from the Fed, cautioning that the bar is high for another rate cut, so that a dovish tilt could boost volatility for stocks across the globe.

On the data front, German exports unexpectedly rose in October, defying expectations for a decline, thanks to European Union trade, while shipments to the US and China fell sharply. Exports from Europe’s largest economy rose 0.1% in October, below expectations of 0.5%.

Exports to EU countries rose by 2.7% on the month, whilst exports of goods to countries outside of the EU declined by 3.3%.

The trump administration imposed a 15% import tariff on most goods from the EU under a deal reached with the bloc. The US was Germany’s largest bilateral trading partner in 2024, with two-way goods totaling €253 billion. However, exports to the US continued falling, dropping 8.3% year on year. Meanwhile, exports to China were down 5.8%, while imports fell 5.2% on the month.

In Germany, defence stocks are getting a lift from supportive news flow on military orders. German lawmakers are set to approve procurement contracts worth a record €52 billion next week, according to Bloomberg. Rheinmetall, Renk, and Hensoldt are rising firmly.

Elsewhere, Thyssenkrupp said it expects to swing into a net loss of up to €800 million in 2026, citing restructuring provisions.

DAX Forecast – Technical Analysis

DAX recovered from the 22,900 November low, rising above the 200 SMA, the rising trendline resistance, and the 50 SMA to hit 24,180, a three-week high.

Buyers, supported by the RSI above, will look to extend gains to 24,500, the November high, ahead of 24,745, the record high.

Immediate support is seen at 24,000 (the round number), the 50 SMA, 23,550 (the 200 SMA), and 23,360 (the horizontal support). A break below the 23,000 support zone creates a lower low.

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