Global Forex Monitor - December 2025: Is the Yen ready for a comeback?

The DXY dollar index remained stable between 99 and 100 in November but pulled back below 99 in early December. Its strength was due to the lack of macroeconomic data resulting from the government shutdown until mid-November, as well as strong quarterly corporate earnings, which led to an influx of foreign capital. Now that this shutdown has ended, macroeconomic indicators are expected to confirm the prospect of US growth remaining below its potential for quite some time.In this context, the Federal Reserve is expected to cut its key interest rates in December and over the course of the first half of 2026 towards a terminal rate of 3.0%. This situation will accentuate the monetary divergence between the Fed and other major central banks, which will put downward pressure on the US dollar. Similarly, concerns about the Fed's independence (L. Cook, K. Hasset) and the enormous financing needs of the US economy could also contribute to the weakening of the US currency, with the DXY dollar index expected to reach 96 in December of next year.In November, the EUR/USD fluctuated between 1.15 and 1.165, causing 3-month implied volatility to plummet to 5.72%. The pair remained under the influence of the US dollar, which stayed firm for most of November due to the lack of US macroeconomic data. Since the end of the shutdown, monetary policy expectations have been favourable to the euro, given that the European Central Bank (ECB) has ended its rate-cutting cycle, whereas the Fed is expected to cut its key rates again in 2026. The EUR/USD will also continue to be supported by improved European growth and a possible peace agreement between Russia and Ukraine.