The Xe Global Currency Outlook - December 2025

As 2025 draws to a close, currency markets are being shaped by shifting global growth, diverging interest‑rate cycles, and the impact of tariffs and trade negotiations. This month’s outlook summarizes the major themes influencing FX markets, based on the December 2025 Xe Currency Outlook report.

United States (USD)

The USD has strengthened roughly 2% since the October FOMC meeting, supported by elevated inflation and delayed economic data due to a 43‑day government shutdown. Markets expect an 80%+ chance of a Fed rate cut on December 10, but the dollar remains resilient because alternatives like the EUR, CNY, and JPY are not showing convincing strength. A rate cut could soften the dollar in the short term depending on Fed guidance.

Euro (EUR)

EUR/USD has traded in a tight range for more than four months after reaching 1.1918 in September. Eurozone GDP growth improved to 0.2% in Q3, unemployment held at 6.3%, and inflation eased to 2.1%. With the ECB clearly signaling an end to rate cuts, the euro remains supported—but USD resilience limits upside. Expect continued consolidation unless central‑bank signals shift.

British Pound (GBP)

Sterling has faced five months of depreciation due to weak growth, rising unemployment, and soft business activity. However, GBP/USD may be stabilizing ahead of the December 18 BoE meeting, where markets price an 88% chance of a rate cut. Bond‑yield differentials show GBP/USD near fair value, suggesting downside risks may be easing.

Canadian Dollar (CAD)

Canada’s economy continues to feel the effects of U.S. tariffs, with manufacturing and investment under pressure. While USD/CAD has trended higher, volatility may rise as USMCA consultation news emerges. A Fed rate cut could push USD/CAD lower, but tariff uncertainty remains an upside risk for the pair.

Japanese Yen (JPY)

JUSD/JPY rose 1.5% in November but may face downward pressure if the Fed cuts rates and the BoJ raises them. Japan’s economy contracted 0.4% in Q3 due to reduced exports, though domestic indicators remain solid. Political influences may also impact BoJ decision‑making. A dual Fed‑cut/BoJ‑hike scenario could pull USD/JPY lower into year‑end.

Chinese Yuan (CNY)

Despite weak retail sales and industrial output, the CNY has strengthened, with USD/CNY reaching a one‑year low. Narrowing U.S.–China interest‑rate differentials and improvement in the Li Keqiang Index have supported CNY momentum. If the Fed cuts rates, USD/CNY could fall below the 7.07 support level.

Australian Dollar (AUD)

Australia’s economy remains firm, with inflation rising to 3.8% and unemployment falling to 4.3%. Markets now expect the next RBA move to be a rate hike. AUD/USD has pushed above 0.6500 and could test 0.6700 in the coming months, supported by improving Chinese activity and upgraded IMF growth forecasts.

New Zealand Dollar (NZD)

New Zealand’s economy shows early signs of recovery, including improving business confidence, rising house prices, and easing inflation expectations. The RBNZ cut rates to

2.25% but signaled no further easing. With markets now pricing 2026 rate hikes, NZD/USD may have reached a cyclical bottom near 0.5750.

Mexican Peso (MXN)

The peso continues to outperform, supported by a stronger current account and relief that larger U.S. tariffs have not been implemented. USD/MXN trades near its lowest levels since July 2024. Volatility may rise as USMCA developments unfold, and potential U.S. negotiation pressure could temporarily lift USD/MXN.

Cross‑Currency Highlights

GBP Crosses:

- GBP/EUR stabilising near 1.1300–1.1350.

- GBP/CHF may see limited upside.

- GBP/CAD supported by bond‑yield spreads.

- GBP/ZAR recovering from 2.5‑year lows.

AUD Crosses:

- AUD/JPY at 3.5‑year highs.

- AUD/EUR and AUD/GBP showing upside potential.

- AUD/NZD volatile as both central banks shift tone.

NZD Crosses:

- NZD/EUR and NZD/GBP showing early signs of reversal.

- NZD/JPY rising with global growth and JPY weakness.

- NZD/AUD likely to find support at long‑term averages.

Conclusion

December is a pivotal month for FX markets, with the Fed, ECB, BoE, and BoJ all meeting within days of each other. Interest‑rate divergence remains the dominant force shaping currency trajectories. With trade tensions, inflation dynamics, and central‑bank policy all in motion, year‑end FX volatility may rise significantly.

For businesses managing international transfers, staying informed and proactive remains essential during this high‑impact period. Learn more at https://www.xe.com/business

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