FX Market Outlook 2025–2026

USD, AUD/USD, USD/JPY and EUR/USD Outlook

Key Themes for 2025–2026

USD 2025 recap:The US dollar experienced a highly volatile 2025. DXY surged above 110 early in the year on the so-called Trump trade, driven by expectations of protectionism, fiscal expansion, and pro-growth reforms following the 2024 election. By March, aggressive tariff policies and concerns over Fed independence triggered recession fears, reversing the rally. As inflation eased and the labour market softened, the Fed cut rates three times in H2, bringing policy to 3.50–3.75% and eroding the dollar’s yield advantage. Despite periodic safe-haven support, DXY ended the year down around 9%.

USD 2026 outlook:The dollar faces continued headwinds in 2026 as policy divergence widens. The Fed is expected to deliver one to two further cuts toward a neutral range of 3.00–3.25%, while the BoJ normalises policy and the ECB remains on hold. Leadership uncertainty at the Fed adds to downside risks. Sustained dollar weakness depends on inflation continuing to moderate, though persistent price pressures could limit losses. Base case sees DXY drifting toward the mid-90s.

AUD/USD 2025 recap:AUD/USD rose 7.3% in 2025, ending a four-year losing streak. Gains were driven by broad USD weakness, firm commodity prices, and a shallower-than-expected RBA easing cycle, with rates cut only 75 bp to 3.60%. Improved risk sentiment after April’s tariff-driven sell-off also fueled a sharp recovery.

AUD/USD 2026 outlook:AUD/USD is supported by a weaker USD backdrop, resilient Australian growth, strong commodity demand, improving global risk appetite, and shifting rate differentials in AUD’s favour. Additional support comes from rising FX hedge ratios among Australian super funds. The pair is expected to grind higher toward 0.6940–0.6950 by mid-2026, barring major risk shocks.

USD/JPY 2025 recap:USD/JPY was volatile, ending little changed after large swings. The BoJ stayed cautious most of the year, but a late-2025 hawkish pivot, driven by currency weakness and rising imported inflation, marked a turning point toward policy normalisation.

USD/JPY 2026 outlook:Gradual BoJ rate hikes and Fed cuts should narrow yield differentials, supporting yen appreciation. USD/JPY is expected to trade volatile in early 2026 before drifting lower toward 146–148 by year-end. Intervention risks near 160 cap upside, while reduced carry trade exposure limits systemic risk.

EUR/USD 2025 recap:EUR/USD gained nearly 13% in 2025 as the ECB completed its easing cycle and Germany pivoted toward large-scale fiscal expansion. Political instability in France capped gains but did not derail the broader uptrend.

EUR/USD 2026 outlook:Further gains are expected, driven mainly by USD weakness and German fiscal stimulus. With the ECB likely on hold and the Fed easing, EUR/USD could rise toward 1.19–1.21 by year-end. French political risk remains the main constraint on upside.