The Xe Global Currency Outlook - February 2025

Global FX market outlook: navigating uncertainty in 2025

As we move further into 2025, the global FX market is facing a whirlwind of economic shifts, trade tensions, and policy changes. The International Monetary Fund (IMF) may have held firm on its 3.3% global growth forecast for 2025 and 2026, but currency markets are signaling uncertainty. Weakness in China and Europe, along with a wave of U.S. tariffs, is already setting the tone for a volatile year ahead.

For traders, businesses, and anyone keeping an eye on international markets, 2025 is shaping up to be a year of high stakes. Here’s what’s happening and what to expect in the coming months.

U.S. tariffs shake up global trade

On February 1, the Trump administration made a decisive move, lifting tariffs across multiple trading partners:

• 25% tariffs on all Mexican and Canadian imports (with a 10% tariff on energy imports).

• An additional 10% tariff on Chinese imports, pushing the average tariff on Chinese goods to 20%.

This latest round of trade measures has sent shockwaves through FX markets, fueling expectations of higher U.S. inflation and forcing traders to reassess their positions. If inflation rises sharply, the Federal Reserve may have to halt or even reverse course on interest rate cuts, strengthening the U.S. dollar further.

Currency markets: winners, losers, and key risks

The tariff increases have created a ripple effect across major currency pairs, amplifying downward pressure on many economies.

Currencies at risk:

• Mexican peso (MXN) & Canadian dollar (CAD):

  North American trading partners are feeling the immediate impact, with MXN and CAD likely to hit fresh cyclical lows.

• Australian (AUD) & New Zealand (NZD) dollars:

  Global growth concerns and struggling domestic economies—New Zealand is officially in recession—are keeping these currencies under pressure. AUD/USD could fall below 0.6000, while NZD/USD is on track for 0.5472.

• Euro (EUR):

  As the European Central Bank (ECB) cuts rates further and trade restrictions take hold, EUR/USD could slip below parity.

• British pound (GBP):

  A sluggish U.K. economy and continued USD strength could drive GBP/USD down to 1.1800.

• Chinese yuan (CNY):

  The People’s Bank of China (PBoC) is attempting to manage depreciation pressures, but USD/CNY is still likely to break above 7.3743.

A resilient performer:

• Japanese yen (JPY):

  As always, USD/JPY remains a wild card. Higher BoJ interest rates could support the yen, but if U.S. Treasury yields climb, the dollar’s strength may offset those gains, keeping volatility high.

Key risks to watch in 2025

Markets are bracing for major shifts in the months ahead. Among the biggest risks:

• A stronger U.S. dollar:

  The USD is on track to gain 5.9% in the first half of 2025, climbing back to September 2022 levels.

• Higher U.S. inflation:

  If tariffs push inflation higher, the Fed may be forced to increase interest rates again—reversing its current stance.

• Eurozone weakness:

  Slower growth, ECB rate cuts, and trade restrictions could drive EUR/USD below parity.

• Global trade tensions:

  If tariffs expand to European imports, expect even more downward pressure on EUR and GBP.

• Volatility in USD/JPY:

  The yen’s strength will depend on how Japanese interest rates and U.S. bond yields play out.

What’s next? Positioning for 2025

The FX market is entering a period of heightened uncertainty, with global trade disruptions, shifting central bank policies, and inflationary pressures all shaping the landscape. Whether you’re managing international payments, trading currencies, or planning for global investments, now is the time to stay informed and act strategically.

One thing is clear: 2025 will not be a year for complacency. Markets are moving fast, and those who adapt quickly will be best positioned to navigate the turbulence ahead.

Stay tuned for more insights as we track the key trends shaping global FX markets.

The content within this blog post is not intended for use as financial advice. This content is for informational purposes only.