The Xe Global Currency Outlook - August 2025

As we step firmly into the second half of 2025, currency markets are balancing fresh trade breakthroughs, shifting interest‑rate expectations, and lingering geopolitical risk. The signing of US $550 billion and US $600 billion trade deals with Japan and the EU has eased fears of a sharp global slowdown, while the Federal Reserve’s “higher‑for‑longer” stance has given the U.S. dollar a new lease of life. European growth is surprising on the upside, commodity currencies are stabilising, and sterling is treading water ahead of an early‑August Bank of England decision.

Key takeaways

• USD resilience: A July FOMC “hold” and sticky U.S. inflation keep rates restrictive for longer, reviving the greenback.

• EUR support: Fiscal stimulus and capital inflows help EUR/USD stay bid despite a knee‑jerk dip after the U.S.–EU trade deal.

• GBP capped: A widely expected 25 bp BoE cut on 7 Aug may pause sterling’s climb toward 1.40.

• CAD & MXN firm: Both currencies have weathered tariff rhetoric; focus turns to potential U.S. talks after Japan/EU deals.

• JPY strength delayed: BoJ patience and firmer U.S. yields keep USD/JPY elevated near 160.

• AUD & NZD steady: RBA and RBNZ cuts are largely priced; reduced slowdown fears offer modest upside versus USD.

USD outlook

U.S. growth rebounded 3.0 % saar in Q2, keeping core CPI sticky at 2.7 %. Fed Chair Powell now calls policy “mildly restrictive” and is in no rush to cut rates. With markets pricing fewer than 15 bp of easing by year‑end, the dollar index (DXY) is likely to grind higher toward 106 over the next few weeks.

EUR/USD outlook

The euro has absorbed the surprise U.S.–EU trade deal and remains underpinned by improving Euro‑area PMIs and robust equity inflows. While one more ECB cut is possible later this year, the medium‑term backdrop stays constructive for EUR/USD, with 1.20 still in view on a six‑month horizon.

GBP/USD outlook

Sterling’s year‑to‑date gains have stalled amid weak U.K. data and an anticipated BoE cut. Short‑term rallies may struggle above 1.30, but a softer USD backdrop could still pull GBP/USD toward 1.36 – 1.38 into Q4.

USD/CAD outlook

Canada’s unemployment has eased to 6.9 % and leading indicators are turning up, yet a yawning Fed–BoC policy gap and fresh U.S. trade negotiations should cap CAD strength for now. Expect USD/CAD to oscillate within 1.36 – 1.40, with a break toward 1.36 possible on strong risk‑on days.

USD/JPY outlook

With the BoJ still on hold and U.S.–Japan yield spreads wide, USD/JPY is likely to hover in a 160 – 162 range. A sustained move lower awaits either a decisive Fed pivot or clear evidence of broadening Japanese wage gains.

USD/CNY outlook

The People’s Bank of China is anchoring USD/CNY between 7.10 and 7.25 via daily intervention. An early‑August U.S.–China tariff announcement is the key wildcard; barring surprises, the pair should track broad USD swings in a tight band.

AUD/USD outlook

The Aussie briefly pierced 0.66 in July before retreating on a stronger USD and soft domestic CPI. An RBA cut on 12 Aug is fully priced, but healthier global risk appetite leaves scope for a gradual grind back toward 0.67 into September.

NZD/USD outlook

New Zealand’s growth remains modest, yet the RBNZ’s cautious guidance has lent some support. With an 82 % chance of a 20 Aug cut already discounted, reduced global slowdown fears could nudge NZD/USD toward 0.61.

USD/MXN outlook

The peso has strengthened nearly 10 % YTD despite Banxico rate cuts. Provided upcoming U.S. trade talks remain cordial, further USD softness could see USD/MXN revisit the 18.25 area.

GBP/EUR outlook

Eurozone outperformance and narrowing rate spreads pushed GBP/EUR to 1.15 in July. If the BoE eases as expected, further slippage toward 1.1440 is plausible.

Other crosses to watch

Summary & how Xe can help

Diverging monetary paths and fresh trade dynamics are reshaping FX. Whether you’re hedging revenue or planning cross‑border payments, Xe’s real‑time rates, forward contracts, and 24/7 transfers help you navigate volatility with confidence. Explore Xe Business Services: 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.