Economic Update

December 15, 2025

US Fed decision faces key data tests

The Federal Reserve’s 25-basis point cut last week surprised no one, but the outlook for further easing remains uncertain. Chair Powell downplayed additional labor market deterioration, projecting only a modest uptick in unemployment. The FOMC vote was notably divided, with three dissenting votes and several members expressing reservations despite supporting the cut.

This week’s focus shifts to November non-farm payrolls and CPI releases. Payrolls may reflect shutdown-related volatility, while CPI faces upside risks from tariffs. Any inflation surprise above consensus could weaken the case for further cuts. Expect heightened USD volatility as markets digest these developments.

Canada: Data and Macklem’s message

The Bank of Canada held rates last week as expected, but that offered little direct support to the CAD. However, USDCAD continued lower as the Fed resumed QE alongside its rate cut. Narrowing spreads favor CAD strength, but Canada’s economic backdrop remains fragile.

Governor Macklem speaks Tuesday, flanked by CPI data earlier in the week and retail sales later. Will these releases reinforce a cautious outlook? Markets currently price almost no chance of a BOC cut over the next year, but sustained CAD strength likely requires both improved data and a supportive tone from Macklem—neither are guaranteed.

Bank of England decision in the spotlight

UK economic data closed last week on a disappointing note. October activity figures confirmed another month of contraction, with GDP down 0.1% month-on-month. Services output fell 0.3%, construction dropped 0.6%, offsetting a 1.1% rise in industrial production. This followed signs of a loosening labor market, albeit with isolated reports of higher pay deals from the REC/KPMG November report on jobs, and a weak start to the key discounting period according to the BRC November sales monitor. Sterling ended the week lower against both the USD and EUR.

This week, labor market and inflation data will set the tone ahead of the Bank of England’s decision, followed by retail sales. At the BOE meeting, the vote could be close, but a 25-basis point cut is expected. Such a close vote may temper expectations of further near-term easing. In terms of the labor market, weak conditions support the case for a cut, though the recent UK Budget complicates the outlook. Will the minutes highlight balanced risks or lean towards downside activity and inflation concerns despite the short-term fiscal stimulus? Sterling’s slip below €1.14 and inability to hold $1.34 suggests limited upside from here.

ECB expected to hold steady

EURUSD climbed back above $1.17 last week, driven more by USD weakness than Eurozone strength. German industrial production improved in October, but Italian data disappointed, and inflation figures confirmed earlier estimates. ECB commentary was sparse ahead of this week’s meeting, but recent remarks acknowledged medium-term upside risks to growth and inflation.

Surveys will dominate the agenda, with German ZEW and IFO readings alongside a host of countries’ consumer confidence indicators culminating in the Euro Area aggregate. The ECB decision should be uneventful, with consensus firmly expecting no change. EUR resilience may depend more on US data than domestic developments.

Banxico set for another cut

Banxico is expected to trim rates by 25 basis points on Thursday, mirroring the Fed’s move. While the rationale appears weak, recent MXN strength against the USD reduces imported inflation pressures. USDMXN has dipped below 18; a move towards 17.6 is possible, though likely driven by USD weakness and short-lived.

Author 

Views expressed in this commentary are those of the author, and may differ from your appointed Moneycorp representative. This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.