Dear Partners and Clients,
As we reach the final days of 2025, the currency markets stand at a fascinating crossroads. This year has been defined by a Great Divergence, a period where long standing economic trends were upended by a return to protectionism in the US and historic policy normalization in Japan.
At Currencies4You, we have monitored these shifts in real time to ensure our clients remain ahead of the volatility. Below is our accurate 2025 Wrapped performance review and our strategic outlook for 2026.
2025 Year in Review: The Key Drivers
1. The USD and The Tariff Stagflation Narrative
The US Dollar began 2025 with momentum, but the turning point was the April 2nd Liberation Day Executive Orders, which introduced universal baseline tariffs.
- The Result: The Federal Reserve pivoted to protect the labor market, cutting rates to 3.75% by December. The DXY Dollar Index declined by 8.4% YTD as a result.
2. Japan’s Historic Pivot
In December, the Bank of Japan (BoJ) hiked its policy rate to 0.75%, the highest level since 1995. This effectively ended the cheap Yen era, sparking a massive repatriation of capital that saw USD/JPY consolidate significantly lower than its 160.00 peaks earlier in the decade.
3. The UK Budget and Sterling’s Yield Cushion
The British Pound emerged as a G10 leader. The Autumn Budget’s expansionary stance kept the Bank of England cautious, allowing GBP/USD to climb +7.0% YTD, ending the year near 1.3395.
2026 Outlook: What to Watch
Looking ahead to 2026, the theme shifts from Reacting to Shocks to Diverging Policy. Here is what our trading floor is preparing for:
- Further US and UK Rate Cuts: We anticipate both the Fed and the Bank of England will continue their easing cycles. We expect the Fed to target 3.00% and the BoE to reach 3.25% by late 2026 as inflation finally stabilizes.
- The ECB Hibernation: After a fast cutting cycle in 2024/25, the ECB is expected to hold steady at 2.00% for much of 2026. While some hawks have hinted at a potential rate hike due to sticky services inflation, most analysts see a long pause as the base case.
- Continued BoJ Tightening: Japan is the outlier. We expect the BoJ to remain on a tightening path, with further hikes toward 1.25% as they seek a neutral rate for the first time in 30 years.
Final YTD Performance Summary
(Data accurate as of December 21, 2025)
| Currency Pair | Jan 1, 2025 | Dec 21, 2025 | YTD Change |
| GBP/USD | 1.2518 | 1.3395 | +7.0% |
| EUR/USD | 1.0351 | 1.1719 | +13.2% |
| DXY (Index) | 107.61 | 98.60 | -8.4% |
| USD/JPY | 157.72 | 157.70 | -0.01% |
We thank you for your continued trust in Currencies4You. Our trading floor remains open to assist with your year end requirements or to help structure your 2026 hedging strategies.