The weakness of the US dollar is expected to continue until the end of the year, supported by seasonal flows and stability in Treasury markets. Commodity currencies are performing well, with EUR/USD and USD/JPY targeting 1.18 and 152, respectively, amid low volatility in the currency market, notes Chris Turner, FX analyst at ING.
Commodity-linked currencies outperform before the end of the year
“Forex markets are relatively calm. US interest rate volatility represented by the MOVE Index has fallen to its lowest levels of the year. The stability of the US Treasury market has certainly been one of the big surprises of 2025. As we approach the end of the year in the FX market, we see that commodity currencies are performing very well – or more accurately, commodity currencies backed by metals.”
“Looking at two-year US real interest rates derived from a two-year inflation swap, real interest rates actually rose by 25 basis points between September and November, largely due to a 50 basis point drop in inflation expectations. The scenario chosen by Hassett would almost certainly be lower real rates as inflation expectations rise. This would lead to dollar weakness.
“However, in the short term, there seems to be a consensus view that the dollar will weaken until the end of the year due to seasonal flows. This is also our view, and why we have year-end targets of 1.18 and 152 for EUR/USD and USD/JPY, respectively. The longer the dollar index trades below the 99.00 level, the more likely it is for it to fall to the 97.80/98.00 area.”
