RegencyFX give their monthly update on developments in the foreign exchange markets. February 2025 was a dynamic month for the foreign currency market, characterised by volatility, shifting monetary policy expectations, and the looming influence of U.S. trade policies under the newly inaugurated Trump administration. Global currencies navigated a complex landscape of economic data releases, central bank decisions, and geopolitical uncertainties, with the U.S. dollar (USD) acting as a pivotal force amid tariff threats and inflationary pressures.

U.S. Dollar (USD): Strength Tempered by Uncertainty

The USD began February on a strong note, buoyed by market anticipation of President Trump’s tariff plans, including 25% tariffs on Mexican and Canadian imports and an additional 10% on Chinese goods, announced on February 1. This policy shift, detailed in Xe’s Global Currency Outlook, initially drove the USD to a two-year high, reflecting expectations of higher inflation and a potential pause in Federal Reserve rate cuts. However, as the month progressed, doubts about the full implementation of these tariffs—echoed in posts on X suggesting “tariff fatigue”—led to a pullback. The USD index fell 2.9% from its peak, marking its largest decline since September, according to Convera’s Global FX Outlook. Despite this, the USD remained firm overall, supported by a resilient U.S. economy and a projected 5.9% gain in the first half of 2025, as noted by Xe.

Euro (EUR): Resilience Amid Challenges

The euro (EUR) exhibited stability in February, with a modest 0.65% gain against the USD since the start of 2025, as reported by Associated Bank. Early-month volatility saw EUR/USD nearing parity due to a sluggish Eurozone economy and ECB rate cuts, but steady growth signals and a December CPI increase to 2.4% helped it rebound to around 1.0513 by late February, per X posts. Germany’s ongoing contraction and rising energy costs posed risks, yet the euro held above critical support levels, aligning with ING’s forecast of a structural shift to a 1.00-1.05 range later in the year.

British Pound (GBP): Under Pressure

The pound (GBP) faced significant headwinds, hitting its lowest level since November 2023 early in February, as noted by Associated Bank. Traders anticipated multiple Bank of England rate cuts—potentially four in 2025—to stimulate a faltering U.K. economy, driving GBP/USD down to 1.21 before a late-month recovery to 1.2707, according to X data. The BoE’s February 6 decision, widely expected to result in a rate cut, added to the bearish sentiment, though unexpected 0.1% GDP growth in Q4 2024 (per T. Rowe Price) offered some respite.

Japanese Yen (JPY): A Standout Performer

The yen (JPY) emerged as a strong performer, appreciating 3.6% against the USD over the month, as highlighted in X posts. This surge was fuelled by market bets on a Bank of Japan (BoJ) rate hike—potentially 25 basis points—shifting sentiment mid-month after an initial drop to a mid-July low. USD/JPY hovered around 149.34 by late February, per X, with volatility persisting due to U.S. Treasury yield movements and the yen’s role in carry trade dynamics, as ING predicted a decline in such strategies.

Emerging Market Currencies: Mixed Outcomes

Emerging market currencies faced a challenging environment. The Canadian dollar (CAD) showed resilience, up 0.16% in January and likely stable in February despite tariff threats, per Associated Bank. The Mexican peso (MXN) and Brazilian real (BRL) remained vulnerable to U.S. trade policy shifts, though high real interest rates (5-6%) offered some buffer, according to ING. In Nigeria, the naira gained 8.5% on the parallel market to 1,490/$ by month-end, per X, contrasting with a 1.7% decline to 1,500/$ on the official market, reflecting divergent market pressures.

AUD, NZD, and CNY: Trade-Sensitive Struggles

The Australian dollar (AUD) and New Zealand dollar (NZD) struggled amid risk-off sentiment and global trade concerns, with AUD/USD potentially dipping below 0.6000 and NZD/USD targeting 0.5472, as Xe warned. The Chinese yuan (CNY) faced depreciation pressures, with USD/CNY poised to breach 7.3743, despite the People’s Bank of China’s efforts to stabilise it, per Xe’s analysis of tariff impact

Currency ranges in January.

GBP/EUR

High: 1.2129 on February 27, 2025

Low: 1.1941on February 6, 2025

GBP/USD

High: 1.2699 on February 26, 2025.

Low: 1.2258 on February 3, 2025.

GBP/AUD

High: 2.0296 on February 28, 2025.

Low:  1.9650 on February 11, 2025

EUR/USD

High: 1.0523 on February 26, 2025.

Low: 1.0221 on February 3, 2025.

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