Geopolitical uncertainty and interest rate policies are set
to remain key themes in FX markets next year, as they were throughout 2024,
prompting brokers to identify value in a wide range of currencies.
2024: A Dynamic Year for FX Markets
It is fair to say that 2024 has been a dynamic year in the
broker market, driven by a combination of volatility and resilience, largely
influenced by central bank policies, shifting inflation targets, and
geopolitical tensions. Liquidity has remained acceptably high overall, albeit
with pockets of unpredictability.
Adam Button, Chief Currency Analyst at Forexlive 
This unpredictability has included the unexpected strength
of the Japanese yen in the latter half of the year, a surprising surge in the
Australian dollar, the strengthening of the US dollar post-election, and a rise
in the value of the yuan.
“It has been a good year for volatility, which brokers and
traders like,” observes Adam Button, Chief Currency Analyst at
ForexLive.
“The important thing about this year’s market moves was that
they set up a 2025 where markets are feeling very optimistic and perhaps even
reminiscent of the bubble-like conditions of 2021 that drew in significant
retail interest,” he says. “I think there is a fair chance that we get a
repeat, or at least a portion of that, next year.”
Inflation Pressures and Unforeseen Events
Nick Carey, Global Head of FX Options at TP ICAP
Nick Carey, Global Head of FX Options at TP ICAP, adds
inflation pressures that hadn’t been priced in – which drove outsized currency
moves across the G10 – to the mix of unforeseen events.
“While Donald Trump’s ‘MAGA’ policies are seen by the market
as dollar-strengthening, his tariff and spending priorities will be very
closely watched in 2025,” he adds.
Continued conflict in the Middle East and Ukraine will drive
volatility in global currencies (particularly local and emerging markets).
Meanwhile, the impact of inflation on key central bank decisions regarding
interest rates remains a persistent theme.
Pete Mulmat, CEO of tastyfx
“The broker market in 2024 presented an interesting
landscape,” says Pete Mulmat, CEO of tastyfx. “However, exceptional performance
and volatility across stocks, bonds, and commodities often overshadowed FX
markets in the minds of investors.”
As the global economy moves beyond a turbulent inflationary
period, 2025 will likely be characterised by how individual countries
differentiate themselves through their economic policies and performance.
Unlike the synchronised global response to rising inflation, the focus will now
shift to where overnight interest rates stabilise and at what level countries
can sustain economic growth.
Examining US Outperformance and Japan’s Economic Revival
“Most notably, this includes examining whether US
outperformance can continue and if countries like Japan can revive their
economic influence,” says Mulmat. “In the political arena, evolving trade
relationships could have a significant impact on currency markets.”
Kate Leaman, Chief Market Analyst at AvaTrade
Whether inflation stays high or cools down will determine
how aggressive rate policies remain, agrees Kate Leaman, Chief Market Analyst
at AvaTrade. “Geopolitics, especially around US-China relations and energy
markets, will weigh heavily,” she says.
Button believes politics will play a major role in market
moves during 2025, with France in turmoil and elections in Canada and Germany.
Optimism and Market Surprises
“There is a broader swing to the right globally, and that is
coming with deregulation and a real hunger for growth,” he says. “Some levers
are going to be pulled to drive that, which will surprise the market. Moreover,
there is an optimistic mood, and that is the kind of thing that can feed on
itself, boost growth, and get markets excited.”
Should the US refuse to support Ukraine, that might
immediately create pressure on the euro against the dollar and boost yields on
bonds in the Eurozone, particularly in Germany.
Geopolitical Tensions Affecting Regional Currencies
Stanislav Bernukhov, Senior Trading Specialist at Exness
That is the view of Stanislav Bernukhov, Senior Trading
Specialist at Exness, who adds that any US effort to strengthen Taiwan and
weaken China’s position in the Asian region could lead to volatility in
regional currencies and a strengthening of the yen as a safe haven.
As for which currencies are likely to offer the best value
next year, Alpari Market Analyst Alexey Efimov says the dollar may remain
strong due to a combination of looming trade restrictions expected to impact
global markets (particularly in export-dependent regions such as Asia),
heightened geopolitical uncertainty, and persistent inflationary risks, which
could alter the pace of the Fed’s much-anticipated rate cuts.
“However, its appeal could weaken if the Fed adopts a more
dovish stance, Europe, China, or emerging markets recover more strongly than
expected, geopolitical tensions ease, or there is backlash from trade
policies,” he says.
Ongoing currency movements reflect mainly underlying fundamentals, with US interest rates expected to remain higher for longer. Temporary FX interventions can help, when market overreactions pose financial stability risks. Watch the full discussion on capital flows… pic.twitter.com/0KYBXzPzuO
— Gita Gopinath (@GitaGopinath) April 28, 2024
Emerging Markets Present Opportunities
Leaman suggests keeping an eye on the euro and the Canadian
dollar, with the former potentially rebounding if the ECB adopts a more
consistent approach to tightening or if economic data outperforms expectations,
and the latter offering value due to its ties to energy prices, which are
expected to stabilise or rise slightly.
“Don’t sleep on emerging market currencies either,” she
adds. “They always have pockets of opportunity, especially if global growth
surprises on the upside.”
Opportunities in Australasian Currencies and Mexican Peso
According to Mulmat, Australasian currencies – particularly
the Australian and New Zealand dollars – offer opportunities, given that both
are at historic lows against the US dollar and have experienced significant
volatility in the past year.
“These currencies are also tied to compelling narratives,
particularly around their economic dependence on China, historical correlations
to precious metals breaking down, and anticipated aggressive rate cuts,” he
adds.
DXY, Weekly Chart, Source: TradingView
Button is optimistic about the Mexican peso, arguing that
the US would be stronger if it built a trade wall around North America, with
Mexico benefitting from open trading borders with the US.
🎄 Markets Heat Up Before the Holidays. #Volatility looms in the last full week of 2024—Brace for wild price moves! And find out here what are the #FiveFundamentals for the week 📈#Trading #Fed #Forexhttps://t.co/HYe51FAluy
— FXStreet News (@FXStreetNews) December 16, 2024
“Indications aren’t great around a big turnaround in China,
but that is one spot I would watch as a major beneficiary if we do start to see
strengthening demand,” he says.
“It is very difficult to be optimistic about
Europe, where growth is poor, deficits are a problem, and energy is an issue
once again. The only thing you can say about the euro is that sentiment is
dreadful, and that is often the condition for a strong reversal in momentum.”
Volatility and Stable Growth Drivers
Volatility is not the only growth driver, with stable and
long-lasting trends often providing decent opportunities for savvy traders.
USDMXN, Weekly Chart, Source: TradingView
“The first currency on our radar is USD/MXN,” says
Bernukhov. “After a big spike in inflation in Mexico in July 2024, overall
inflation is moving down, and Banco de Mexico has cut interest rates four times
this year.
If this trend continues, the median target rate for 2025 is expected
to reach between 7% and 9.5%, which would pressure the peso against the
dollar.”
Declining Yuan and Market Implications
Another potential trend is the decline of the yuan against
the dollar.
“The Chinese government started stimulating the economy in
2024 with large financial inflows. In the medium- to long-term, that usually
leads to the depreciation of a local currency,” observes Bernukhov.
Geopolitical uncertainty and interest rate policies are set
to remain key themes in FX markets next year, as they were throughout 2024,
prompting brokers to identify value in a wide range of currencies.
2024: A Dynamic Year for FX Markets
It is fair to say that 2024 has been a dynamic year in the
broker market, driven by a combination of volatility and resilience, largely
influenced by central bank policies, shifting inflation targets, and
geopolitical tensions. Liquidity has remained acceptably high overall, albeit
with pockets of unpredictability.
Adam Button, Chief Currency Analyst at Forexlive
This unpredictability has included the unexpected strength
of the Japanese yen in the latter half of the year, a surprising surge in the
Australian dollar, the strengthening of the US dollar post-election, and a rise
in the value of the yuan.
“It has been a good year for volatility, which brokers and
traders like,” observes Adam Button, Chief Currency Analyst at
ForexLive.
“The important thing about this year’s market moves was that
they set up a 2025 where markets are feeling very optimistic and perhaps even
reminiscent of the bubble-like conditions of 2021 that drew in significant
retail interest,” he says. “I think there is a fair chance that we get a
repeat, or at least a portion of that, next year.”
Inflation Pressures and Unforeseen Events
Nick Carey, Global Head of FX Options at TP ICAP
Nick Carey, Global Head of FX Options at TP ICAP, adds
inflation pressures that hadn’t been priced in – which drove outsized currency
moves across the G10 – to the mix of unforeseen events.
“While Donald Trump’s ‘MAGA’ policies are seen by the market
as dollar-strengthening, his tariff and spending priorities will be very
closely watched in 2025,” he adds.
Continued conflict in the Middle East and Ukraine will drive
volatility in global currencies (particularly local and emerging markets).
Meanwhile, the impact of inflation on key central bank decisions regarding
interest rates remains a persistent theme.
Pete Mulmat, CEO of tastyfx
“The broker market in 2024 presented an interesting
landscape,” says Pete Mulmat, CEO of tastyfx. “However, exceptional performance
and volatility across stocks, bonds, and commodities often overshadowed FX
markets in the minds of investors.”
As the global economy moves beyond a turbulent inflationary
period, 2025 will likely be characterised by how individual countries
differentiate themselves through their economic policies and performance.
Unlike the synchronised global response to rising inflation, the focus will now
shift to where overnight interest rates stabilise and at what level countries
can sustain economic growth.
Examining US Outperformance and Japan’s Economic Revival
“Most notably, this includes examining whether US
outperformance can continue and if countries like Japan can revive their
economic influence,” says Mulmat. “In the political arena, evolving trade
relationships could have a significant impact on currency markets.”
Kate Leaman, Chief Market Analyst at AvaTrade
Whether inflation stays high or cools down will determine
how aggressive rate policies remain, agrees Kate Leaman, Chief Market Analyst
at AvaTrade. “Geopolitics, especially around US-China relations and energy
markets, will weigh heavily,” she says.
Button believes politics will play a major role in market
moves during 2025, with France in turmoil and elections in Canada and Germany.
Optimism and Market Surprises
“There is a broader swing to the right globally, and that is
coming with deregulation and a real hunger for growth,” he says. “Some levers
are going to be pulled to drive that, which will surprise the market. Moreover,
there is an optimistic mood, and that is the kind of thing that can feed on
itself, boost growth, and get markets excited.”
Should the US refuse to support Ukraine, that might
immediately create pressure on the euro against the dollar and boost yields on
bonds in the Eurozone, particularly in Germany.
Geopolitical Tensions Affecting Regional Currencies
Stanislav Bernukhov, Senior Trading Specialist at Exness
That is the view of Stanislav Bernukhov, Senior Trading
Specialist at Exness, who adds that any US effort to strengthen Taiwan and
weaken China’s position in the Asian region could lead to volatility in
regional currencies and a strengthening of the yen as a safe haven.
As for which currencies are likely to offer the best value
next year, Alpari Market Analyst Alexey Efimov says the dollar may remain
strong due to a combination of looming trade restrictions expected to impact
global markets (particularly in export-dependent regions such as Asia),
heightened geopolitical uncertainty, and persistent inflationary risks, which
could alter the pace of the Fed’s much-anticipated rate cuts.
“However, its appeal could weaken if the Fed adopts a more
dovish stance, Europe, China, or emerging markets recover more strongly than
expected, geopolitical tensions ease, or there is backlash from trade
policies,” he says.
Ongoing currency movements reflect mainly underlying fundamentals, with US interest rates expected to remain higher for longer. Temporary FX interventions can help, when market overreactions pose financial stability risks. Watch the full discussion on capital flows… pic.twitter.com/0KYBXzPzuO
— Gita Gopinath (@GitaGopinath) April 28, 2024
Emerging Markets Present Opportunities
Leaman suggests keeping an eye on the euro and the Canadian
dollar, with the former potentially rebounding if the ECB adopts a more
consistent approach to tightening or if economic data outperforms expectations,
and the latter offering value due to its ties to energy prices, which are
expected to stabilise or rise slightly.
“Don’t sleep on emerging market currencies either,” she
adds. “They always have pockets of opportunity, especially if global growth
surprises on the upside.”
Opportunities in Australasian Currencies and Mexican Peso
According to Mulmat, Australasian currencies – particularly
the Australian and New Zealand dollars – offer opportunities, given that both
are at historic lows against the US dollar and have experienced significant
volatility in the past year.
“These currencies are also tied to compelling narratives,
particularly around their economic dependence on China, historical correlations
to precious metals breaking down, and anticipated aggressive rate cuts,” he
adds.
DXY, Weekly Chart, Source: TradingView
Button is optimistic about the Mexican peso, arguing that
the US would be stronger if it built a trade wall around North America, with
Mexico benefitting from open trading borders with the US.
🎄 Markets Heat Up Before the Holidays. #Volatility looms in the last full week of 2024—Brace for wild price moves! And find out here what are the #FiveFundamentals for the week 📈#Trading #Fed #Forexhttps://t.co/HYe51FAluy
— FXStreet News (@FXStreetNews) December 16, 2024
“Indications aren’t great around a big turnaround in China,
but that is one spot I would watch as a major beneficiary if we do start to see
strengthening demand,” he says.
“It is very difficult to be optimistic about
Europe, where growth is poor, deficits are a problem, and energy is an issue
once again. The only thing you can say about the euro is that sentiment is
dreadful, and that is often the condition for a strong reversal in momentum.”
Volatility and Stable Growth Drivers
Volatility is not the only growth driver, with stable and
long-lasting trends often providing decent opportunities for savvy traders.
USDMXN, Weekly Chart, Source: TradingView
“The first currency on our radar is USD/MXN,” says
Bernukhov. “After a big spike in inflation in Mexico in July 2024, overall
inflation is moving down, and Banco de Mexico has cut interest rates four times
this year.
If this trend continues, the median target rate for 2025 is expected
to reach between 7% and 9.5%, which would pressure the peso against the
dollar.”
Declining Yuan and Market Implications
Another potential trend is the decline of the yuan against
the dollar.
“The Chinese government started stimulating the economy in
2024 with large financial inflows. In the medium- to long-term, that usually
leads to the depreciation of a local currency,” observes Bernukhov.
