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Analysis from Lloyds Bank shows Pound Sterling tends to underperform in December, although this year it could buck the trend.
Seasonality is a notable factor in global FX during December, with Lloyds' research showing an average decline of 0.11% for the Pound in December over the past ten years.
This refers to the performance of the GBP Nominal Effective Exchange Rate (NEER), a measure of broader GBP performance against a basket of currencies.
"December is typically a poor month for the pound; it might be better this year. Typically, December is a softer month for the pound, with 2022 and 2023 standing out in that regard," says Nick Kennedy, FX Strategist at Lloyds Bank.
A breakdown of GBP-specific pairs shows the GBP/JPY and GBP/NZD typically lose the greatest value in December.
However, GBP/USD traditionally tends to rise.
The all-important GBP/EUR tends to have a poor time of it, typically falling 0.59% in December.
However, Kennedy thinks December 2024 could see Sterling buck its traditional Christmas trends.
"So far this year, end-of-year performance has been steadier," he says. "While that might partly be due to a pause in the dollar’s rally from its September low, GBP has looked perkier against a number of other currencies too."
"And there is reason to expect that course to be maintained," he adds.
GBP/EUR is trending higher as we move through the first half of December; Kennedy notes gains are supported by rate differentials and Eurozone economic and political stresses, which continue to weigh on the euro.
"The GBP/SEK chart looks similarly constructive. Sterling has also regained composure against the Canadian dollar following the pullback in November," says Kennedy. "The longer-term trend in GBP/CAD remains upward and the fundamentals gel with that."
Pound Sterling saw a strong performance in the first full week of December, rising against most of its peers.
This includes a strong gain against the Australian Dollar. However, we note in our Week Ahead Forecast for GBP/AUD that the pair looks overbought and could see a near-term pullback.
"Where month-to-date performance might be more immediately overextended is against the Antipodean currencies, GBP/AUD is nearing the top end of the trading range and there does not look an immediate catalyst for that to break out," says Kennedy.
At the start of the new week, there was some supportive news for the AUD. China's politburo meeting signalled that authorities are likely to be more proactive in supporting the world's second-largest economy in 2025.
Monday's Politburo's official announcement stated that China's policy stance would now become 'moderately loose', whereas previously, it was to be 'prudent'.
This is the first time such a stimulative stance has been adopted since late 2010.
"China stimulus expectations could give the Aussies a foothold," says Kennedy.
Where the Pound could certainly buck the seasonal trend is against the New Zealand Dollar.
As the seasonal matrix shows, GBP/NZD is usually one of the biggest GBP losers in December.
Kennedy notes "the prevailing trend is more clearly upward," for GBP/NZD and this exchange rate "would be the better long pick" when contrasted with GBP/AUD.
"Where GBP could be exposed is against the yen, where year-end moves can get squeezy. A hawkish sounding BoJ on 19th December is a potential catalyst for that," adds Kennedy.