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Monthly Foreign Exchange Outlook

DEREK HALPENNY
Head of Research, Global Markets EMEA and International Securities

Global Markets Research
Global Markets Division for EMEA
E: derek.halpenny@uk.mufg.jp

LEE HARDMAN
Senior Currency Analyst

Global Markets Research
Global Markets Division for EMEA
E: lee.hardman@uk.mufg.jp

LIN LI
Head of Global Markets Research Asia

Global Markets Research
Global Markets Division for Asia
E: lin_li@hk.mufg.jp

KHANG SEK LEE
Associate

Global Markets Research
Global Markets Division for Asia
E: khangsek_lee@hk.mufg.jp

MICHAEL WAN
Senior Currency Analyst

Global Markets Research
Global Markets Division for Asia
E: ｍichael_wan@sg.mufg.jp

LLOYD CHAN
Senior Currency Analyst

Global Markets Research
Global Markets Division for Asia
E: lloyd_chan@sg.mufg.jp

SOOJIN KIM
Analyst, ESG and Emerging Markets Research – EMEA

DIFC Branch – Dubai
E: soojin.kim@ae.mufg.jp

_{MUFG Bank, Ltd.
A member of MUFG, a global financial group}

November 2025

KEY EVENTS IN THE MONTH AHEAD

1) SUPREME COURT HEARING & JAPAN FISCAL POLICY

Following the focus in October on trade negotiations and the deal that was finally reached between the US and China, trade policy risks have receded with a commitment to a truce for twelve months. The eyes of leaders across the world will be on the Supreme Court on 5th November when oral arguments will be heard with two separate cases challenging the legality of using the IEEPA to implement reciprocal tariffs globally. The Supreme Court will not rule immediately and under normal circumstances it would be well into next year before a ruling would be made. However, the urgency of this case means a ruling early next year is probable. Types of questions, tone and other aspects of these arguments may play a role in shaping expectations of the outcome of the ruling. In addition to this focus in the US, investors may get some further details on the size and scope of the fiscal stimulus package being compiled in Japan under the new leadership of PM Takaichi. Economy Minister Kiuchi and Finance Minister Katayama have both stated that details of the plan should be confirmed at some point later in November. Excess surpluses based on higher tax revenues than planned will help finance the spending but it is assumed that some additional JGB issuance will also be required. 30-year JGB yields fell in October with concerns over excessive spending easing. Yen selling looks overdone and PM Takaichi may not prove as ‘reflationist’ as assumed.

2) CENTRAL BANKS MEETING IN NOVEMBER

The US dollar advanced in October (DXY +2.1%) in part on the more hawkish FOMC communications at its meeting. In November there will be five G10 central bank meetings. The RBA is first up on 4th November, followed by the Riksbank on 5th and then the Norges Bank and the BoE on 6th. The RBNZ will then meet on 26th November. Of these central banks, the RBNZ is likely to cut by another 25bps confirming the RBNZ as the most aggressive central bank in cutting rates. The BoE pausing in November would be the first time since easing started for the BoE to not cut at the quarterly meeting when the Monetary Policy Report is released. Still, we expect the BoE to signal scope for a cut at the final meeting of the year in December. We expect a 6-2-1 vote with two dissents for a 25bp cut and one for a 50bp cut. We see pound underperformance continuing on the basis of this outcome.

3) US-CHINA TRADE TRUCE HELPS STABILIZE MARKET SENTIMENT SHIFTING THE FOCUS BACK TO CHINA MACRO

The summit between President Trump and President Xi in South Korea has stabilized market sentiment in the near term. The reduction in 10% fentanyl-related tariffs is likely only to reduce some pressure on China’s exports to US. The 15th Five-Year Plan proposal highlighted the priorities of high-quality development and technological self-reliance, and we can look forward to detailed quantitative targets to be released post the National People’s Congress next March. Near-term market focus will be back to China’s economics fundamental, and any further signs of growth deterioration especially in domestic demand may prompt policy action from the monetary side to deliver a rate cut in Q4.

Forecast rates against the US dollar - End-Q4 2025 to End-Q3 2026

Notes: All FX rates are expressed as units of currency per US dollar bar EUR, GBP, AUD and NZD which are expressed as dollars per unit of currency. Data source spot close; Bloomberg closing rate as of 4:30pm London time, except VND which is local onshore closing rate. All consensus forecasts are Bloomberg sourced.

US dollar

MARKET UPDATE

In October the US dollar strengthened against the euro in terms of London closing rates, from 1.1729 to 1.1537. The dollar gained more notably against the yen, from 147.98 to 154.06. The FOMC at its meeting in October cut the range for the federal funds rate by 25bps to 3.75%-4.00%, the second 25bp cut this year, which followed 100bps of cuts last year. The FOMC confirmed the end of QT effective 1^st December with the Fed no longer reducing UST bond holdings by USD 5bn per month. MBS holdings would continue to decline but would be offset by buying of US T-bills.

OUTLOOK

The US dollar rebounded in October (DXY +2.1%) but remained in the range that has been established following the sharp drop earlier in the year following the April Liberation Day trade tariffs. The last seven month-end closing rates for the DXY have been in a +/-1.6% range. We have maintained our US dollar bearish forecast levels and see dollar selling resuming going forward. A notable break to the upside of the 100-level in DXY would prompt us to reconsider the scale of dollar weakness we are currently forecasting. But we believe the dollar has benefitted from the vacuum of key US jobs data due to the government shutdown and we see that data as more likely than not endorsing a more aggressive easing path than is now priced into the US rates curve. The FOMC communication after the cut in October was more hawkish mainly due to there being no weak (our assumption) jobs data to offset the concerns over tariff-related inflation risks. That’s due to the government shutdown and the downside risks to the economy are also being ignored. There is no end in sight to the shutdown and the longer this drags on the bigger the economic implication will be. A lack of money to pay air-traffic controllers could start to disrupt US air travel soon.

Treasury Secretary Scott Bessent has indicated that the choice of new Fed Chair could be announced before the end of the year. Kevin Hassett, Christopher Waller and Kevin Warsh are the favourites. Bessent was highly critical of the hawkish rhetoric from the Fed following the cut in October and promised to “find a leader who is going to revamp the entire institution” given he believes the Fed is “stuck in the past”. Whoever wins, it is likely that considerable change will be expected and we believe inevitably the markets will conclude this will incorporate a shift to a more pro-growth, less inflation-focused strategic approach to policy-setting that will ultimately serve to steepen the yield curve undermine the dollar. Given our view of a weaker labour market this combination will likely result in the US curve pricing in more rate cuts than currently priced. A steeper yield curve and Fed independence doubts will likely see global investors up their hedge ratios on US dollar asset holdings.  

Global investors do not currently have the full picture on US fundamentals and we see labour market data as fuelling renewed rate cut expectations. However, we acknowledge the Fed not cutting at upcoming meetings is a growing risk that would likely mean the dollar is stronger than we currently forecast.

INTEREST RATE OUTLOOK

* Interest rate assumptions incorporated into MUFG foreign exchange forecasts.

As expected, the FOMC cut rates again by 25bps in October. There were two dissenters, Schmid, who preferred to keep rates unchanged, and Miran, who voted again to cut by 50bps. They also announced the end of QT, effective as of December 1, with the reinvestment of agency debt and MBS holdings based on anticipated principal paydowns in the current month, with proceeds used to purchase T-bills with maturities of up to one year. Powell’s message at the press conference was generally more hawkish than we were anticipating. He called this second cut a “risk management cut” and pushed back on a December cut being a “foregone conclusion” – far from it he stressed, despite the markets initially pricing it in by ~95% into the October FOMC meeting. Now, market pricing is closer to ~63%. In our view, Powell likely wants to avoid appearing as though markets are forcing the Fed to cut. We will be watching the FOMC minutes and future speeches by Fed members for some guidance. With the government shutdown ongoing, we believe this is negatively impacting the economy. We still argue that the labor market warrants more rate cuts, but the risk is the Fed skips meetings ahead.   

(George Goncalves)

GMR US EMPLOYMENT INDEX

Source: Bloomberg, Macrobond & MUFG GMR

US IMPLIED POLICY PATH (AS OF 31/10/2025)

Source: Bloomberg, Macrobond & MUFG GMR

Japanese yen

MARKET UPDATE

In October the yen weakened sharply versus the US dollar in terms of London closing rates from 147.98 to 154.06. The yen also weakened versus the euro from 173.57 to 177.74. The BoJ at its meeting in October kept the key policy rate unchanged at 0.50%, following the 25bp hike in January, the first 25bp rate hike since before the GFC in 2007. The BoJ is also continuing with the policy of cutting JGB monthly purchases at a pace of JPY 400bn per quarter but announced in June that the pace of reduction will be reduced to JPY 200bn per quarter from Q2 2026.

OUTLOOK

The yen weakened sharply in October and well beyond our expectations following the LDP leadership election victory for Sanae Takaichi – there were two waves of yen selling, the first after her victory, and the second following the vote in the Diet when Takaichi won the PM vote with the support of Ishin Party and some independents. While the vote to confirm her as PM was marginal, expectations of increased fiscal spending and less monetary tightening by the BoJ propelled the yen weaker. A more hawkish FOMC meeting also fuelled USD/JPY buying. PM Takaichi in a speech to the Diet did lay out policy plans and it is clear that increased fiscal spending will be pursued. However, the emphasis was on “strategic” fiscal spending that will be targeted at sectors like defence and tech. Give-aways to households will be scrapped and the policy plans laid out did not include a reduction in the consumption tax on food. The 30-year JGB yield fell 9bps in October suggesting fiscal concerns have not been the key driver of yen weakness. Increased political pressure on the BoJ to not raise rates is perhaps the bigger influence undermining the yen. However, this may not be a persistent factor going forward either. The cost of living crisis has been the primary reason for the LDP losing support in the lower and upper house elections and restraining the BoJ that fuels yen weakness and further increases in inflation will likely prove counter-productive. We suspect government opposition to a rate hike may not be as strong going forward.

President Trump’s visit to Japan ended with Treasury Secretary Bessent releasing a statement of his meeting with new Finance Minister Katayama that stressed the need for “sound monetary policy” in “preventing excess exchange rate volatility” in a time very different to Abenomics twelve years ago. This was followed by Bessent posting on X the need to give the BoJ “policy space”. We see this as a sign of potentially quick and more vocal criticism of BoJ policy if the yen was to continue weakening. Given the importance of a good relationship with the US, we find it difficult to believe the Takaichi government would pressure the BoJ to refrain from raising rates.

The yen has certainly remained weaker than we expected. But we are sceptical that Takaichi will be as “reflationist” in her policies and as Bessent stated, Japan is today very different than when Abenomics began and the government will be mindful of the need to curtail inflation. Yen recovery will ultimately be part of that.

INTEREST RATE OUTLOOK

* Interest rate assumptions incorporated into MUFG foreign exchange forecasts.

The 10-year JGB yield remained broadly flat during October, closing 2bps higher at 1.67% - this despite 10-year yields dropping by various degrees in the US, Germany and the UK. The ‘reflation’ trade following Sanae Takaichi becoming prime minister is certainly part of yields being more supported in Japan. In addition, the depreciation of the yen was the second largest one-month drop this year which will raise inflation risks going forward. Still, the JGB 10s30s spread flattened which suggests fiscal risks have not deteriorated in response to Takaichi’s victory. Indeed, the drop in the 30-year JGB yield (-9bps) was the second month of decline and the two-month drop of 13bps was the most since July/August last year. Economic Revitalisation Minister Kiuchi has indicated a fiscal package will be compiled and details revealed in November. Increased JGB issuance is likely and the markets appear to be assuming an overall package similar to last year’s JPY 14trn. Assuming the focus will be on reducing inflation for households and on strategic investments in defence and tech, the JGB market should absorb the increase without too much disruption.

TWI JPY VS. JGB 30YR YIELD CORRELATION

Source: Bloomberg, Macrobond & MUFG GMR

TWI JPY VS. JGB 2S10S SPREAD

Source: Bloomberg, Macrobond & MUFG GMR

Euro

MARKET UPDATE

In October the euro weakened versus the US dollar in terms of London closing rates, moving from 1.1729 to 1.1537. The ECB at its meeting in October kept the key policy rate unchanged at 2.00%, the third consecutive meeting in which the policy rate was left unchanged, which followed 200bps of cuts since last year. The ECB is running down APP securities and started PEPP run-off in July last year with EUR 417bn of securities having come off the balance sheet this year through to September.

OUTLOOK

The euro weakened in October and closed near the bottom of the 1.1500-1.1800 trading range that EUR/USD has traded most of the time since July. Just like last month when EUR/USD hit the highest level since 2021, the retracement lower in October was more a reflection of US dollar developments rather than euro developments, although the euro did underperform modestly within G10, and closed as the third worst performing currency. The macro backdrop has however been generally supportive and we see that continuing and providing support for the euro. The advance composite PMI index for the euro-zone advanced, led by strength in Germany while the IFO Business Climate Index also pointed to better optimism in Germany. The EU-US trade deal and now the trade war truce agreed between China and the US should further support sentiment over the coming months. The ECB at its meeting in October highlighted reduced downside risks to growth due to easing trade uncertainties and the ceasefire in the Middle East. The updated IMF forecasts, released in October, revealed a pick-up in GDP growth for the euro-zone from 0.7% this year to 1.7% in 2026. Q3 GDP expanded by a stronger than expected 0.2% Q/Q primarily due to a larger than expected 0.5% Q/Q expansion in France. Growth in Germany is expected to pick up from 0.3% to 1.0%. We now expect the ECB to keep the policy rate on hold through to June next year, a period in which we expect the Fed to be active in cutting rates.

Q3 corporate earnings results in Europe are also on track to outperform expectations. Of the companies that have reported, close to 60% have beaten EPS guidance despite concerns over the impact from trade and political uncertainties. According to Bloomberg, earnings results are indicating YoY growth in the region of 5% in contrast to the -0.4% estimate before earnings results began. The Euro Stoxx 600 advanced by 2.5% in October, slightly outperforming the S&P 500 (2.3%). Euro Stoxx cyclical stock performance relative to defensive stocks remains elevated historically and points to continued EUR support. Valuations remain cheap in Europe compared to the US with the Euro Stoxx 600 forward P/E at 16.5 times in contrast to the very high 23.6 times for the S&P 500.

The advance of the dollar in October makes our EUR/USD call more difficult to achieve but we are reluctant to alter our forecasts given the European fundamental backdrop, if anything, has improved. We await the US jobs data vacuum to be filled.

INTEREST RATE OUTLOOK

* Interest rate assumptions incorporated into MUFG foreign exchange forecasts.

The 10-year German bund yield declined in October, closing 8bps lower at 2.63%. We are maintaining our view of a modest grind lower in yields in part reflecting our view of a decline in US Treasury yields. Our assumption is yields will fall less in Europe and the 10-year US-EZ spread will narrow further. We have pushed back the timing of the next cut from the ECB by a quarter into end-Q2 next year meaning there will be a notable period of convergence in short-term rates given we assume an active Fed in cutting rates. We now see only one rate cut from the ECB over the period through to end-Q3 next year with the macro backdrop in Europe continuing to show resilience. Real GDP growth is expected to pick up next year helped by inflation being back at target and by the delayed pass-through of monetary easing. Inflation risks, in our view, remain skewed to the downside but given we do not expect an ECB cut until mid-year, the move lower in inflation in the euro-zone will be slow and modest. Growth should also benefit in Germany from stimulus from the investment spending on infrastructure and defence. That fiscal spending (2% of GDP per year) will curtail the scope for long-term yields to move lower.

IFO EXPECTATIONS VS. LONG TERM AVERAGE

Source: : Bloomberg, Macrobond & MUFG GMR

EUR/USD VS. RELATIVE EQUITY MARKET PERFORMANCE

Source:: Bloomberg, Macrobond & MUFG GMR

Pound Sterling

MARKET UPDATE

In October the pound weakened further versus the dollar in terms of London closing rates, moving from 1.3443 to 1.3135. In addition, the pound weakened against the euro from 0.8725 to 0.8783. The MPC did not meet in October and hence the key policy rate was unchanged at 4.00%, after five 25bp cuts since August last year.

OUTLOOK

The pound underperformed in October, finishing the second worst performing G10 currency with the primary catalyst the weaker than expected inflation data. Prior to that release the activity data had been supportive for the pound with the GDP and manufacturing activity data all supportive of the BoE’s cautious stance. However, the CPI miss we believe will prove most crucial and we maintain our view that the BoE will cut rates at the December meeting. Numerous MPC members have expressed concerns over food inflation in shaping inflation expectations but the September data saw food inflation drop to 4.5% YoY – the BoE had expected 5.0%. The headline rate at 3.8% was below the 4.0% expected by the BoE. Two MPC members are already voting for a cut – Dhingra and Taylor. We suspect Ramsden will now join them given in the past he has voted to cut against the majority. If that’s the case, then a shift from Governor Bailey would likely be enough to take one other member (Breeden probably) to give a majority favouring an easing. Of course we have two CPI and jobs reports before the December meeting but if broadly consistent with mixed conditions in the labour market along with confirmation that inflation has peaked, then the majority needed to cut is achievable. The rates market has moved in that direction – but is about 8bps short of being fully priced.

On 26^th November Chancellor Reeves will announce the Autumn Budget details and we see the budget as another reason that could provide scope for the MPC to cut in December. Media speculation that OBR productivity forecasts will be lowered could mean further tax rises will be required to ensure the self-imposed fiscal rules are met has reinforced pound underperformance. PM Starmer toward month-end refused to rule out an income tax rise. A credible budget is crucial to help restore fiscal credibility and a buffer of headroom in the order of GBP 15-20bn is likely needed – headroom previously of GBP 10bn has been quickly eroded by rising Gilt yields. The Gilt market has performed well suggesting markets expect a credible budget, although the weaker inflation print has also played a role. The 30-year yield closed 33bps lower in October. In the US and Germany, the equivalent declines were 8bps, and 7bps respectively. While lower yields due to MPC rate cuts is GBP-negative, improved fiscal credibility is a supportive factor curtailing GBP selling further ahead.

A rate cut in December by the MPC is currently priced at 60% so there is scope for front-end yields to decline further if the MPC acts like we expect. That opens up the scope for continued GBP underperformance more via the euro than the US dollar given we maintain a bearish dollar view.

INTEREST RATE OUTLOOK

* Interest rate assumptions incorporated into MUFG foreign exchange forecasts.

The 10-year Gilt yield declined notably in October, falling 29bps to close at 4.41%. The drop in the 10-year yield in October was the largest monthly decline since December 2023. The 10-year yield also broke out of the 2025-range hitting the lowest level since November last year. The Gilt market considerably outperformed other key bond markets – the UST 10-year yield dropped just 7bps. The sharp drop took hold from 13^th October through to 22^nd October covering key data including jobs and wages and the CPI data. The CPI data in particular brought back expectations of a rate cut by the BoE by year-end. We don’t expect a rate cut in November but two CPI and jobs reports before the December MPC should provide the MPC with the confidence to cut in December. The drop in food inflation could prove particularly important given the MPC has indicated its importance in shaping inflation expectations and wage setting. The budget on 26^th November will also prove important for Gilt yield direction and we assume a bigger buffer to ensure fiscal rules are not breached will help restore some confidence. The scale of drop in yields in October has resulted in us lowering our levels over the forecast period.

MPC MEMBERS: DOVISH VS HAWKISH DISSENTs (NOV-24 TO PRESENT)

Source: : Bloomberg, Macrobond & MUFG GMR

GBP & GILT 30YR YIELD CORRELATION

Source: : Bloomberg, Macrobond & MUFG GMR

Chinese renminbi

MARKET UPDATE

In October, USD/CNY moved from 7.1200 to 7.1176. On 20th October, the PBoC kept the 1Y and 5Y LPR at 3.00% and 3.50% respectively as expected. In the 18th meeting of the 14th National People Congress Standing Committee, PBoC Governor Pan reiterated its stance to implement a moderately loose monetary policy and also emphasized implementing the existing policy measures.

OUTLOOK

The meeting between President Trump and President Xi on 30^th October in South Korea seemed to end on a positive note. In an official statement, President Xi urged both countries to implement the consensus reached effectively and that the tangible result from the meeting will provide strong stability for the US and China as well as the global economy. Following the meeting, China’s Ministry of Commerce released a statement detailing what had been agreed on: 1) fentanyl-related tariff to be reduced by 10% (from current 20%); 2) a one-year extension of US suspension of 24% reciprocal tariff on China; 3) a one-year suspension of US rules issued on 29^th September regarding the expansion of end-user controls to cover affiliates of listed entities, and likewise, a one-year suspension of Chinese rules issued on 9^th October regarding rare earth and critical minerals export controls; 4) a one-year suspension of US implementation measures under Section 301 investigation targeting China’s maritime, logistics and shipbuilding, and once that takes place, China will subsequently suspend the implementation of its countermeasures for one year. Beyond these measures agreed, other topics discussed included the expansion of agricultural trade and TikTok issues, among others. Overall, we view the summit positively as it helps de-escalate the tensions between both sides in the near term, providing a foundation for finding structural long-term solutions to resolve differences.  Separately, we think the 10% tariffs reduction relating to fentanyl could reduce some pressure on China’s goods exports to US.

While the communique released after the 4^th plenary session on 23^rd October (link) signalled an extension of 14^th Five-Year Plan, the 15^th Five-Year Plan places a greater emphasis on high-quality development, technological self-reliance and new quality productivity, and linking consumption and investment to people. In particular, the 15^th Five-Year Plan proposal highlights the goal of steadily improving total factor productivity and substantially increasing household consumption-to-GDP rate (China: 39% of GDP vs 57% for G7 average in 2023). The proposal also committed to an increase in the proportion of fiscal spending on public services, to optimize the structure of government investment with an increase in proportion of people-related investment, among others for the 2026-2030 period. The decreased US tariffs on China will likely provide some marginal support for exports in Q4, but overall GDP in Q4 likely will continue to decelerate. Balanced with other factors, including a continued play of China asset revaluation however moderate, we see slightly more upside for CNY than downside against the US dollar in Q4.

INTEREST RATE OUTLOOK

* Interest rate assumptions incorporated into MUFG foreign exchange forecasts.

In October, the movement of 10-year CGB yield diverged from that of China’s overall stock market with the yield down by 7bps to 1.79% whereas the CSI 300 closed unchanged. While asset revaluation was an ongoing theme, the yield moving lower reflects the weaker domestic demand implied by monthly retail sales in September and FAI numbers. In the just concluded 4th plenary session, the guideline for Chinese economic policy is to “keep the economic fundamental base stable”. With the data over the past couple of months indicating a downward trend in economic performance, and persistent deflation, we see the possibility of macro policy adjustments in Q4 but more on the monetary policy side rather than the fiscal side. The Fed’s rate cut also provides room for PBOC. Additionally, the front-loaded issuance in the earlier part of this year means that government bond issuance towards the end of Q4 likely declines, while the stronger banks’ deposit growth compared with the loan growth would mean more government bond demand from banks, a slower pace of rotation into stocks could exert downward pressure on the 10-year CGB yield, which may reach 1.75% in Q4.

LOWER HOUSEHOLD CONSUMPTION RATE COMPARED TO G7 COUNTRIES

Source: : Bloomberg, MUFG GMR

10Y CGB YIELD MOVED LOWER & CSI 300 MARCHED HIGHER IN OCTOBER

Source: : Bloomberg, MUFG GMR

For other currencies outlooks, please download the PDF version attached at the top of this page.