The below key drivers are likely to impact investor risk sentiment and FX markets in December:

EUR | Euro

The euro is holding in a stable range as Eurozone growth stays soft and geopolitical decisions remain unresolved. Markets appear steady, but policy and political actions over the holiday break could influence direction.

EURUSD traded between US$1.15 and US$1.17 for much of the past quarter, with the pair looking likely to remain close to this range for the rest of the year. The stimulus package promised by new German Chancellor, Friedrich Merz, is taking longer than expected to implement, resulting in data from the Eurozone’s powerhouse economy, continuing to underwhelm.

The Eurozone posted modest growth of 0.2% for Q3 GDP, showing the European bloc is struggling with the uncertainty of war on its eastern border and the unpredictability of US President, Donald Trump. Inflation in the Eurozone continues to hover close to the European Central Bank’s (ECB) target of 2%, so we can likely expect the ECB’s December 18 rate decision seeing interest rates held, with guidance they could remain at 2.15% for many months to come. Those holding euros will be hoping the promised German infrastructure and defence spending splurge gains pace in 2026, which could bolster the euro value.

EU policymakers are still contemplating using frozen Russian assets to fund further aid to Ukraine, in the absence of any new funds being provided by the Trump administration. Whether this controversial move is implemented and any potential reaction from Russian President, Vladimir Putin, will be a key area of interest over the Christmas period.

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GBP | Sterling

The pound slid early in the month but bounced back as the UK Budget and stronger economic data boosted confidence. Attention now turns to the Bank of England’s upcoming rate decision and what it means for the currency.

November saw GBPUSD reach its lowest level since April’s tariff -driven volatility, with the pair dropping to US$1.3009 on November 4.

Uncertainty over the health of the UK economy and the measures that Chancellor of the Exchequer, Rachel Reeves may take in her November 26 Budget to balance the books weighed on the pound for much of the month. In the end, Reeves decided against an income tax rise and sought to raise funds through more targeted measures on expensive properties and pensions. The pound rallied in the aftermath of the Budget as Reeves freed up more fiscal headroom than many had predicted. GBPUSD pushed up through US$1.33 in early December as the closely watched Services PMI figure for November was revised higher, indicating that the economy was less impacted than as previously thought.

As we head towards Christmas, the main event from the UK will be the Bank of England’s (BoE) interest rate decision due on December 18th. The BoE is widely expected to unveil a 0.25% interest rate cut bringing relief to homes enduring the highest borrowing costs since before the Global Financial Crisis nearly 20 years ago. The pound might also make further gains if the US Federal Reserve (Fed) also cut rates as largely expected and UK data indicates growth is continuing to hold up.

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AUD | Australian dollar

The AUD slipped slightly as a stronger US dollar and shifting interest rate expectations weighed on it. For now, it’s holding steady, with future moves hinging on economic data and central bank signals.

In November, the Australian dollar saw a modest decline against the US dollar, losing roughly 0.7% in value as market forces shifted toward a stronger USD. The AUDUSD pair, which started the period near US$0.6545, dipped to around US$0.6527 before partially recovering toward the end of the month. While the move was relatively mild, it reflected a combination of global monetary-policy expectations, domestic economic conditions, and market sentiment. A primary driver of the AUD’s softness was the US dollar’s renewed strength.

Investors have been closely monitoring the US Federal Reserve’s signals regarding interest rate policy. Recent commentary from Fed officials suggested a slower pace of future rate cuts than previously expected, and key US economic data, including employment and inflation indicators, supported a more cautious outlook. As a result, the USD gained traction, naturally putting downward pressure on the AUD. The Reserve Bank of Australia (RBA) maintained its cash rate at 3.60%, signalling it was in no rush to ease monetary policy. RBA commentary highlighted ongoing inflation concerns and a resilient labour market, suggesting that interest rates may remain stable for the near term.

Looking ahead, the AUD will likely remain sensitive to US monetary policy signals, domestic economic data, and shifts in global risk appetite. For now, the market appears to be in a phase of cautious stability, with the AUD holding steady despite the broader strength of the US dollar.

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NZD New Zealand dollar

The New Zealand dollar dipped against the US dollar in November, before rebounding, influenced by interest-rate moves and mixed economic signals. Markets remain watchful, balancing caution with signs of domestic resilience.

The New Zealand dollar experienced a modest decline against the US dollar, losing roughly 1.18% as market forces shifted in response to domestic and global developments. The NZDUSD pair fell to around US$0.558 at its lowest, marking a seven-month trough, before rebounding toward the end of November to finish near US$0.5735.

A key driver of the NZD’s weakness was monetary policy and interest rate expectations. Early in the month, markets had priced in the possibility of further rate cuts by the Reserve Bank of New Zealand (RBNZ) amid softening economic data and concerns over weaker domestic demand. That pushed NZD lower, reflecting investor caution. However, the RBNZ delivered a 25 basis-point cut, lowering the official cash rate to 2.25%, and signalled that this may mark the end of its easing cycle.

Domestic economic signals provided additional support toward month-end. Retail sales data and a jump in business confidence reaching its highest level in 11 years, suggested that New Zealand’s economy still holds pockets of resilience.

Looking ahead, the NZD’s trajectory will likely remain sensitive to both domestic and global developments. Key triggers include inflation, retail sales, and business sentiment, as well as signals from the RBNZ and the FedUS Federal Reserve. Broader market sentiment, particularly demand for commodities and risk appetite, is expected to continue influencing the NZD’s movements. For now, the NZD appears to be navigating a cautious stability, reflecting both challenges and resilience in the New Zealand economy.

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USD | United States dollar

The US dollar faces pressure from expected Fed rate cuts and easing global risk demand, though strong economic data or market jitters could spark occasional rallies amid ongoing volatility.

Through December, the US dollar’s trajectory will likely be shaped by expectations around the Federal Reserve’s (Fed) monetary policy and evolving global risk sentiment. Markets currently assign a high probability to a rate cut by the Fed at its upcoming December meeting, a move that typically weighs on USD strength.

Global investors are also shifting capital away from the US as other regions stabilise, reducing “safe-haven” demand for the USD. Meanwhile, US fiscal concerns including elevated public debt and large deficits contribute to longer-term structural doubts, undermining confidence in sustained USD strength. On top of that, global trade, and supply-chain uncertainties, and shifting investment flows to assets in other currencies, have further weighed on the US dollar.

If the Fed does cut rates, and signals a willingness to reduce further, the USD could remain under pressure, especially versus major counterparts whose central banks may be holding or even raising rates. However, that downside could be mitigated or even reversed under several scenarios: if US economic data surprises to the upside (strong employment, inflation stability), prompting the Fed to pause cuts,; or if global market jitters, revive safe-haven demand for USD.

At the global level, the US dollar could see intermittent strength even amid rate-cut cycles. In the short-term, expect continued volatility and likely some further depreciation against major currencies, with potential intermittent rallies. The USD may trade in a range around current levels, unless a major policy or macroeconomic shift occurs.

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JPY | Japanese yen

The Japanese yen weakened early in November but stabilised after BoJ hints at a potential rate hike, easing speculative pressure and suggesting a shift from its long-standing easy-money policy.

Over November, USDJPY reached a high of 157.45 and a low of 153.05, resulting in a net change of about 1.40% against the US dollar. The Japanese yen’s trajectory was defined by persistent weakness early in the month, followed by a late period stabilisation as shifting fiscal and monetary dynamics reshaped market expectations.

Sentiment shifted after Bank of Japan (BoJ) Governor Kazuo Ueda signalled that yen weakness was feeding into underlying inflation and indicated that the BoJ would discuss the timing and feasibility of a rate hike, which was the strongest indication yet that a December move was under active consideration. Reuters reported on December 5th that there was almost 90% chance of the BoJ hiking rates to 0.75% (from 0.5%), the first one since January 2025. These comments helped lift short-term Japanese Government Bond (JGB) yields and curtailed speculative short-yen positions, allowing the currency to find a floor after weeks of pressure. While some policymakers continued to advocate caution, the combination of elevated inflation, public warnings from the finance ministry about excessive currency moves, and the prospect of imminent policy normalisation halted the yen’s decline and set the stage for a potential shift in the BoJ’s long-standing accommodating stance.

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CAD | Canadian dollar

The Canadian dollar has been weighed down by lower interest rates, softer oil prices, and weak economic data. Its outlook remains cautious, though a rebound in commodities or steadier conditions could offer some support.

Over the past few months, the Canadian dollar has come under pressure as several structural and macroeconomic factors weigh on its value. A key influence has been the widening short-term interest rate differential between Bank of Canada (BoC) and the FedUS Federal Reserve, with Canadian rates lower relative to US rates, making Canadian dollar assets less attractive to global investors.

Commodity prices, particularly oil, have also played a role. Recent weakness in oil markets has added headwinds. Lastly, disappointing economic data including contractions in manufacturing and trade uncertainty have undercut investor confidence. As economic momentum falters, capital tends to flow toward “safer” currencies, weakening the CAD.

Looking ahead to December, the outlook for the Canadian dollar remains cautious but not without potential stabilising factors. A key driver will be how the BoC and global commodity markets behave. If oil prices rebound, that could help support CAD by improving Canada’s trade balance and boosting foreign-exchange inflows. Many analysts expect that with US interest rates likely to remain comparatively higher, Canadian investors may continue finding USD-denominated assets more appealing.

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SGD | Singapore dollar

The US dollar rose against the Singapore dollar as Fed rate expectations shifted, while Singapore’s resilient economy and inflation kept markets watching for policy signals and regional influences.

In November, USDSGD climbed to a high of 1.3099 during the third week, taking cues from a firmer US dollar as concerns over stretched AI valuations and stronger payrolls data reinforced expectations that the Fed would keep rates unchanged. Over the past week, the pair has been oscillating around 1.2960, with markets now pricing an 88% probability of a 25bp Fed rate cut, up from 69% a month ago. This shift reflects the absence of major US data releases, allowing rate cut expectations to drift higher, echoed by FedFederal Reserve Chair Jerome Powell’s broadly non-committal remarks on a softening yet stable labour market and easing but still above-target inflation.

Singapore’s economy continued to show resilience in Q3, with GDP expanding 4.2% year on year and the government upgrading its full-year growth forecast to about 4%. Inflation pressures also picked up, with the core Consumer Pricing Index (CPI) rising to 1.2% in October, the highest reading this year, driven mainly by higher services, retail and food prices. These developments support expectations that the Monetary Authority of Singapore (MAS) is likely to maintain its current policy stance in January.

Moving forward, USDSGD will likely continue to take cues from broad USD sentiment, with Asia-related drivers remaining influential. Near-term support may emerge if the CNY fixing weakens or regional risk appetite deteriorates. Resistance could build if the Fed is dovish with rate cuts, or if upcoming US data strengthens expectations of rate cuts.

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HKD | Hong Kong dollar

November saw USDHKD edge stronger US dollar and Fed rate expectations influenced markets, while Hong Kong’s resilient economy and the currency peg kept the pair largely stable.

USDHKD traded between 7.7684 and 7.7930, slightly higher than the prior month, taking cues from a firmer USD in mid-November as concerns over stretched AI valuations and a firm US payrolls print initially tempered expectations of a near-term Fed rate cut, though sentiment reversed later in the month as markets priced in an 88 percent probability of a 25bp cut by early December.

Hong Kong’s economy remained firm in Q3 2025, with real GDP expanding 3.8% y/y and 0.7% q/q, supported by stronger exports and steady domestic demand. Inflation stayed modest, with Composite CPI rising 1.2% y/y, while retail sales grew 6.9%, marking sixth consecutive monthly increase amid improving sentiment and rising visitor arrivals. Overall, the data points to a still-resilient economy despite global uncertainties.

Looking ahead, USDHKD is expected to remain anchored under the currency board system. Downside pressure may emerge if the US interest rate cuts don’t meet expectations, or if incoming data reinforces expectations of Fed rate cuts, which HKMA would likely mirror. Resistance could arise from equity-market inflows tied to China’s outlook and ongoing resilience in Hong Kong’s economy, both of which lift HKD demand. Stronger HKD demand would tighten liquidity, reducing the Aggregate Balance and push up 1-month HIBOR, shifting carry in favour of HKD. Quarter-end regulatory adjustments may further tighten HKD liquidity, while episodes of global risk-off sentiment could briefly lift USD/HKD, though such moves should remain contained by the peg framework.

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