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Navigating political, trade & debasement risks in the FX market
JPY impact from political risks in Japan
- Takaichi victory fuels optimism over Abenomics 2.0 policy shift
- The LDP’s grip on power continues to loosen
- LDP leader Takaichi is not guaranteed to be next PM
- Are market concerns over much looser fiscal policy overblown?
- Government with involvement of DPFP could add to fiscal concerns
- BoJ to remain cautious over resuming rate hikes in near-term
- Fading of optimism over pro-growth policies to support JPY rebound
EUR impact from political risks in France
- French political uncertainty has recently been headwind for euro
- Higher hurdle to trigger bigger negative market reaction
- Pension reform suspension prioritizes short-term political over long-term fiscal sustainability
- Domestic politics to stabilize allowing EUR to rebound
Will FX volatility remain low & USD weak?
- Will FX market volatility continue to remain low?
- New phase of US-China trade policy escalation increases risks
- Long-term bond repricing & USD hedging remains in focus
- Elevated US equity market valuation viewed as key stability risk
Does higher gold price reflect FX debasement fears?
- One of the best performing assets in 2025 up by almost 60%
- Stronger demand from central banks & investment
- Price surge linked to debasement fears but inflation well-behaved
- CHF has held its value better than other FX Majors
- CHF has outperformed when gold price has risen sharply
FX Forecasts
- USD to re-weaken when political risks ease outside of US