The Xe Global Currency Outlook - April 2025

Why the U.S. dollar is sliding — and who’s gaining ground

The world’s currencies are on the move again — and it all starts with (surprise!) tariffs, inflation, and a few central banks rethinking their plans.

Yesterday, the U.S. announced a sweeping new 10% tariff on imports — plus higher rates aimed at select countries and sectors. That’s thrown a new layer of uncertainty into an already complex global economy. Add in sticky inflation and mixed signals from the Fed, and you’ve got the makings of a weaker U.S. dollar, which has dropped 4.4% since the start of the year.

Meanwhile, some currencies are finding their moment. The euro is rising on the back of a €500 billion fiscal boost, the pound is riding Europe's momentum, and the yen is strengthening as Japan moves away from ultra-low rates.

Elsewhere, not everyone’s catching a tailwind. The Canadian dollar, Aussie dollar, and Chinese yuan are under pressure from slowing growth and trade concerns.

So what does it all mean? Let’s take a look.

The U.S. dollar has lost its grip

Let’s start with the big one: the U.S. dollar.

The American economy has been slowing in early 2025. Then came the tariff news—on April 2, the Trump administration announced a 10% universal tariff on all imports, effective April 5, with targeted tariffs for select trade partners rolling out shortly after.

While the goal is to bring production back home, the announcement added a hefty dose of market uncertainty—especially as businesses and consumers brace for potential price increases. Inflation is still above target, but not surging, and the Federal Reserve has signaled only one rate cut this year.

The result? The U.S. dollar is down 4.4% since January. Not a crash, but enough to be noticed across everything from import costs to international investment flows.

The Euro finds new strength

Across the Atlantic, the European Union is making headlines of its own.

EU leaders recently committed to a massive €500 billion defense spending initiative—roughly 3.8% of GDP. That’s not just a political signal — it’s a major fiscal injection into the economy, one that could fuel growth and inflation in the coming quarters.

The ECB, which had been expected to keep cutting interest rates, may now hold back. Fewer cuts = stronger currency. EUR/USD is already climbing, and analysts see potential for it to reach 1.1500 if current trends continue.

The pound tags along

The British pound is getting a lift too.

It’s not just because the U.K. is doing everything right—it’s also because the country has deep trade ties with the Eurozone. As the EU economy gets a boost, the U.K. could benefit from increased demand and stronger regional growth.

Persistent inflation is also playing a role. The Bank of England is expected to cut rates just once more this year, which is helping support the pound’s recent momentum.

Canada and Mexico: Partially shielded, still exposed

One notable twist: Canada and Mexico were exempt from the latest round of U.S. tariffs. That’s good news for now, given how intertwined their economies are with the U.S.

Even so, the Canadian dollar (CAD) hasn’t been a standout. Sluggish growth and previous trade frictions have left it underperforming relative to peers. If the economic picture doesn’t improve, the loonie could slip to multi-year lows.

Mexico’s peso (MXN), on the other hand, has seen modest gains—benefiting from a softer dollar and some investor optimism around trade stability.

AUD and NZD are struggling

Trade tensions tend to hit commodity-linked currencies hard. That’s playing out right now in Australia and New Zealand.

Both the AUD and NZD have weakened in 2025, weighed down by concerns over global growth and China’s slowdown. With China still working through challenges in its property sector—and with the PBoC actively intervening in currency markets—demand for exports from Australia and New Zealand has dipped.

Rate cuts from the Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ) are also expected soon, adding further pressure. Some projections have AUD/USD falling below 0.6000 and NZD/USD dropping to 0.5472.

The Yen is making a comeback

For years, the Japanese yen has been seen as a stable but low-yield currency. That may be changing.

After 34 straight months of inflation above 2.0%, the Bank of Japan is finally taking steps to raise interest rates. That’s creating a new narrative for JPY, and we’re seeing it start to strengthen.

Expect volatility—markets are still adjusting—but some forecasts put USD/JPY closer to 132.00 if Japan continues on this path.

What could happen next: 2025’s Currency Watchlist

There’s a lot still in play. Here are the big themes and risks to keep your eye on:

• Further USD weakness

  More economic softness or trade tension fallout could drag the dollar down further.

• Loonie lows

  The Canadian dollar could underperform if growth doesn’t pick up or if other currencies keep gaining.

• Eurozone strength

  That €500B fiscal boost could keep the euro climbing if it drives real economic momentum.

• Pound’s resilience

  A steady U.K. economy and limited rate cuts could help GBP stay strong.

• Pressure on AUD/NZD

  These currencies could keep slipping if trade frictions escalate or China slows further.

• JPY volatility

  As Japan normalizes rates, the yen could strengthen—but the ride may be bumpy.

So, what should you do with all this information?

Whether you’re moving money internationally, managing exposure to foreign currencies, or just curious about how exchange rates work — these trends matter.

A softer U.S. dollar could make imports more expensive. A stronger euro or yen might impact your travel plans or investment returns. And if you’re doing business across borders, volatility in exchange rates could affect everything from pricing to profits.

The takeaway? Stay sharp, stay agile, and think big-picture. If currency shifts could impact your profits or cost of goods sold, it might be time to explore risk management strategies that help protect your margins.

In a year like 2025, it’s not just about watching the markets—it’s about understanding the story behind the numbers.

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