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Société Générale’s latest monthly FX market assessment sees the U.S. dollar increasingly fragile due to policy uncertainty, high valuation, and evolving trade risks.

The Japanese yen stands out as the top-performing G10 currency, benefitting from the Bank of Japan’s tightening cycle, while emerging market (EM) currencies appear positioned for a comeback after a turbulent 2024.

 

1. USD Outlook: Still Strong but More Fragile

Key Change: While the US dollar remains strong, it has become more volatile due to policy uncertainty and high valuation.

Drivers include growth and interest rate differentials that still support the USD, but not as strongly as in 2022-2024. U.S. trade and geopolitical risks (tariffs, negotiations) are now mostly priced in, limiting further upside.

That being said, Soc Gen sees no clear catalysts for a sharp USD reversal yet.

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2. JPY Forecast: Stronger Due to BoJ Tightening

The Japanese yen (JPY) is the only G10 currency with a clear positive shift. The Bank of Japan (BoJ) is tightening monetary policy while other central banks consider rate cuts, potentially allowing USD/JPY to fall into the 140-150 range in H1 2025, from recent highs near 159.

Longer-term, a return to USD/JPY 100 is possible but could take over a decade.

 

3. EUR/USD Volatility Rising

Key Change:

EUR/USD volatility is expected to stay high due to US protectionism and potential “currency war” escalation. Tariff risks impacting European exports and the ECB’s monetary response must also be considered says Soc Gen.

 

4. European Currencies: SEK and CHF Could Outperform

Key Changes:

SEK (Swedish krone) could outperform as a European equity recovery takes hold.

CHF (Swiss franc) weakening as risk appetite returns and the SNB intervenes to manage currency strength.

EUR/GBP expected to range between 0.83-0.87 in 2025 as GBP shorts increase.

 

5. EM Currencies: Turning Point for Recovery

A stronger EM FX performance is expected in 2025 after a difficult Q4 2024.

Peak uncertainty and market pain may be behind us, says Soc Gen, and as more tariff hurdles are resolved, market fears will ease. A more favorable US interest rate environment and improved growth outlook will also offer some support.

The Mexican peso is tipped to be the first to recover, followed by Brazilian real.

 

6. Tariff Impact on AUD, NZD, and CAD

The Australian, New Zealand, and Canadian dollars are under pressure due to US tariff threats. Soc Gen says US trade tensions are set to disproportionately affect these economies. CAD has broken above 1.45 against USD due to US-Canada tariff risks. AUD/USD will remain under pressure until geopolitical risks ease.

 

7. Emerging Market Currencies:

Latin America:

The Mexican peso is positioned for a recovery, as tariff fears ease.

The Brazilian real is rebounding due to reduced concerns over fiscal policy credibility.

Asia:

The Chinese yuan remains weak due to US tariff escalation and moderate Chinese retaliation.

The Indian rupee is one of the weakest EM performers, facing structural slowdowns and portfolio outflows.

CEEMEA:

The Turkish lira will see controlled depreciation, but total returns remain attractive.

The South African rand faces risks from Trump’s social media threats and potential removal from AGOA trade deal.

 

8. FX Forecast Adjustments

EUR/USD: Expected to remain between 1.01 and 1.07 in H1 2025.

USD/JPY: Forecasted to drop into the 140-150 range in H1.

USD/CAD: Trading above 1.45, reflecting trade risks.

EUR/GBP: Expected to stabilize between 0.83-0.87.

MXN, BRL, TRY: Emerging markets currencies expected to rebound.

 

9. Summary of Major Forecast Changes

USD remains strong but faces more volatility and fragility.

JPY is the most positively revised G10 currency due to BoJ tightening.

Emerging Market FX (especially MXN, BRL) expected to recover.

EUR/USD volatility to increase due to tariff risks and US monetary policy.

Tariffs are weighing on AUD, NZD, CAD.

SEK could outperform in Europe, while CHF weakens.

TRY depreciation will be gradual, while ZAR faces downside risks.