With around 25 working days left before the end of the year, poorer liquidity and institutions winding down their portfolios and hedging books before year-end may start to influence FX markets as much as fundamentals. Keeping an eye on seasonals may therefore prove useful. Looking back to 1973, we find that in general most currencies tend to strengthen against the dollar into year-end (see Figure 1). The Canadian dollar is an exception and some currencies like the yen only enjoy moderate strength, but the euro (pre-1999 Deutsche mark) shows its strongest positive up-month in December. Interestingly, most dollar weakness tends to get unwound in January, so extrapolating trends from December price action can prove dangerous.
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Deutsche Bank