The Xe Global Currency Outlook - March 2025

March 2025 Global Currency Outlook: Uncertainty, trade tensions, and FX volatility

As we move into March, the global FX market continues to react to shifting trade policies, slowing economic growth, and central bank decisions. The U.S. economy is showing early signs of a slowdown, largely influenced by uncertainty surrounding the Trump administration’s tariff policies. Many U.S. businesses and consumers rushed to make import purchases before tariffs took effect, leading to a short-term boost in spending but an early contraction in Q1 GDP calculations.

Historically, when uncertainty clouds the U.S. economic outlook, the USD strengthens. This trend is holding true in early 2025, with the greenback gaining traction, particularly against commodity-linked currencies. Meanwhile, other major economies are experiencing their own unique pressures, from ongoing recession in New Zealand to renewed intervention efforts by China’s central bank. Here’s what’s shaping global currency movements this month.

USD gains strength amid global uncertainty

Despite concerns over economic growth, the U.S. dollar remains firm. Market uncertainty and trade policy risks are creating a strong demand for USD, a typical safe-haven currency during economic turbulence.

• Commodity currencies under pressure: The Australian dollar (AUD), New Zealand dollar (NZD), and Canadian dollar (CAD) are seeing the sharpest declines. These currencies are highly sensitive to global growth, and with economic momentum slowing, their depreciation is accelerating.

• NZD takes the hardest hit: With New Zealand officially in recession and the Reserve Bank of New Zealand (RBNZ) signaling further interest rate cuts, the NZD is facing the strongest downward pressure.

• CAD & MXN volatility ahead: The Canadian and Mexican currencies may experience even sharper depreciation once the latest round of U.S. tariffs takes full effect.

China and Europe struggle under trade and economic pressure

The People’s Bank of China (PBoC) continues to intervene in the FX market in an attempt to slow the depreciation of the Chinese yuan (CNY). However, the challenges are mounting:

• The Chinese economy is still struggling to recover from the collapse of its property sector.

• The Trump administration’s next round of tariffs—an additional 10% on Chinese imports—is set to take effect on March 12, bringing total U.S. tariffs on Chinese goods to 20%.

• Despite intervention efforts, USD/CNY is expected to climb to new highs.

Meanwhile, the euro (EUR) is likely to remain weak due to sluggish economic growth, continued European Central Bank (ECB) rate cuts, and the looming threat of U.S. tariffs on European imports. If these tariffs materialize, EUR/USD could fall below parity in 2025.

A bright spot for GBP?

The British pound (GBP) has outperformed other major currencies in early 2025, and further gains may be on the horizon. The U.K. economy is showing signs of improvement, and in a surprising turn, President Trump has suggested that the U.S. and U.K. could negotiate a “real trade deal.”

If the U.K. successfully avoids the harshest U.S. tariffs, GBP may continue to appreciate against a basket of currencies, outperforming both the euro and commodity-linked currencies.

JPY strengthens as Japan fights inflation

The Japanese yen (JPY) is gaining ground as the Bank of Japan (BoJ) continues to raise interest rates to combat inflation. Japanese inflation has remained above the BoJ’s 2.0% target for 34 consecutive months, and policymakers are taking aggressive steps to cool price pressures.

However, USD/JPY remains highly volatile—while a stronger yen is expected due to BoJ rate hikes, a firm USD and rising U.S. Treasury yields could limit JPY’s gains.

Key risks shaping FX markets in 2025

1. USD remains strong, but volatility rises: Market uncertainty and retaliatory trade actions from U.S. trading partners could introduce more FX volatility.

2. A deeper U.S. economic slowdown: If U.S. tariffs create greater economic drag than expected, GDP growth may slow faster, impacting Fed policy decisions.

3. EUR/USD risk below parity: A weaker European economy, trade restrictions, and aggressive ECB rate cuts could drive EUR/USD below 1.0000 in 2025.

4. GBP/USD outperformance: The pound could outperform other major currencies if the U.K. economy strengthens and avoids broad U.S. tariffs.

5. AUD & NZD remain weak: AUD/USD could drop below 0.6000, while NZD/USD is on track for 0.5472, weighed down by global trade uncertainty and RBA/RBNZ rate cuts.

6. USD/JPY volatility continues: JPY strength is supported by BoJ rate hikes, but the USD’s resilience may keep gains in check.

Looking ahead: preparing for an uncertain 2025

As trade tensions rise, central banks adjust policy, and global economies shift, FX markets are poised for more volatility in the months ahead. The USD remains the dominant force, benefiting from economic uncertainty and safe-haven demand, while commodity currencies and the euro face ongoing downside risks.

For businesses, investors, and global traders, staying informed will be critical. With the right insights, you can make strategic moves in an unpredictable market.

Stay tuned for next month’s Global Currency Outlook as we track the latest trends shaping the FX landscape in 2025.

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