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.

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, 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.

“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 characterized by how individual countries differentiate themselves through their economic policies and performance. Unlike the synchronized global response to rising inflation, the focus will now shift to where overnight interest rates stabilize 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.”

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

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.

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 stabilize 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.

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.

“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,” he adds. “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.

“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,” he adds.

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.