The Xe Global Currency Outlook - July 2025

As we move into the second half of 2025, currency markets are reacting to shifting interest rate expectations, slowing economic growth in major economies, and continued geopolitical uncertainty. The U.S. dollar has extended its decline, hitting multi-year lows, while European currencies have strengthened on the back of fiscal support and capital inflows. Meanwhile, central banks across the globe are weighing rate cuts against sticky inflation, creating an environment of diverging monetary policies that is shaping currency movements.

Key takeaways

• The USD has fallen over 11% from its January peak, with markets pricing in rate cuts as the U.S. economy slows.

• EUR/USD has gained more than 13.5% in 2025 so far, supported by fiscal stimulus and investment inflows.

• GBP/USD is trending higher but faces pressure from the BoE’s expected August rate cut.

• CAD and MXN have both appreciated despite U.S. trade tensions.

• JPY strength is delayed as the Bank of Japan pauses rate hikes.

• AUD and NZD are seeing mild gains against the USD but remain under pressure versus European currencies.

USD outlook

The U.S. dollar remains under sustained downward pressure as signs of economic slowdown grow clearer. Both the ISM services and manufacturing surveys are in contraction territory. Jobless claims have risen to their highest levels since 2021, while inflation has cooled but remains above target. With markets pricing a September rate cut as almost certain, the Fed’s cautious approach is likely to keep the USD trending lower. By year-end, the dollar index (DXY) could fall another 5%.

EUR/USD outlook

The euro continues to be a prime beneficiary of USD weakness. In 2025, EUR/USD has climbed over 13.5%, supported by the Eurozone’s €500 billion defense-related fiscal stimulus, strong capital inflows into European equities, and expectations that the ECB is nearing the end of its rate-cutting cycle. Although one more ECB cut is possible this year, the medium-term outlook remains constructive for EUR/USD to approach 1.2000.

GBP/USD outlook

Despite a sluggish U.K. economy—contracting 0.3% in Q1 and facing rising unemployment—GBP/USD has risen nearly 11% this year, mainly driven by USD depreciation. While the BoE is expected to deliver a 25bp rate cut in August, the pound may still benefit from USD weakness and spillover demand from a strengthening Eurozone. A move toward 1.4000 is possible in coming months, though history suggests sustaining levels above that mark may prove difficult.

USD/CAD outlook

The Canadian dollar has appreciated against the USD even as Canada’s own economy shows softness, with rising unemployment and subdued demand. Trade tensions with the U.S. flared following Canada’s new digital services tax, but overall USD/CAD has remained under downward pressure in line with broad USD weakness. Support levels near 1.3600 may be tested again, with an eventual move to 1.3200 possible.

USD/JPY outlook

Japan’s economy stalled in Q1 but is showing signs of recovery, with manufacturing returning to expansion territory. The BoJ kept rates on hold in June but signaled plans to reduce QE, allowing long-term bond yields to rise. As U.S.-Japan rate differentials narrow and the Fed moves toward cuts, USD/JPY is expected to drift lower toward 140.00 over coming months.

USD/CNY outlook

China’s economy remains under pressure, with deflationary trends and a weak property sector. The People’s Bank of China continues daily intervention to stabilize the yuan, preventing it from strengthening too quickly and worsening deflation. USD/CNY has traded in a tight range and is expected to remain stable in the near term, tracking broad USD movements.

AUD/USD outlook

The Australian dollar has benefited modestly from USD depreciation even as Australia’s economy remains sluggish. The RBA is widely expected to cut rates in July, but with the Fed also moving toward cuts, the interest rate differential may stay broadly stable. While downside risks persist due to global growth concerns, AUD/USD could trend up to 0.6680 or 0.6700 over coming months.

NZD/USD outlook

New Zealand’s economy has seen a slight improvement, but growth remains modest. The RBNZ has adopted a cautious stance on further rate cuts, supporting the kiwi somewhat. Nevertheless, much of NZD/USD’s gains have been driven by USD weakness, and the pair may consolidate with upside potential toward 0.6150 in coming months.

USD/MXN outlook

The Mexican peso has strengthened nearly 10% against the USD this year. Despite inflation exceeding Banxico’s target range, the central bank has cut rates to support growth. Trade tensions with the U.S. have been less severe than feared, offering relief to MXN. Further USD depreciation could see USD/MXN decline toward 18.25.

GBP/EUR outlook

The pound has come under modest pressure against the euro, with GBP/EUR falling around 1.5% in June. The Eurozone’s stronger economic growth prospects, robust capital inflows, and reduced ECB rate-cut expectations support the euro. GBP/EUR may decline toward 1.1500 in the coming months.

Other crosses to watch

• GBP/CHF: Faces downside risk amid geopolitical tensions and CHF safe-haven demand. SNB remains ready to intervene to limit CHF strength.

• GBP/SEK: Supported around 12.80–13.00 but unlikely to see large gains as both economies face challenges.

• GBP/CAD: Benefiting from trade uncertainty in North America and strong European demand. Further gains toward 2.0000 possible over the next year.

• GBP/ZAR: May appreciate toward 24.80 on relatively looser SARB policy and strong UK portfolio inflows.

• GBP/CZK: Trending lower as the Czech economy outpaces the UK’s, aided by strong EU demand.

Summary

With the U.S. economy slowing and the Fed expected to cut rates, the dollar is likely to remain under downward pressure through the second half of 2025. Meanwhile, fiscal stimulus and capital flows are supporting the euro and other European currencies. Commodity-linked currencies like AUD and NZD are benefitting from USD weakness but remain exposed to global growth risks. Expect continued divergence in monetary policy paths to drive FX volatility and opportunities for businesses managing international payments.

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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.