FX Talking

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8 December 2025

G10 FX Talking: Riding out the Fed story

The DXY dollar index is ending the year down 9%. The surprise has been the resilience of US trading partners in the face of tariff hikes and the fading exceptionalism of the US economy. Seasonal weakness could see the dollar edge lower into year-end, although much will depend on the reaction to the FOMC meeting. We continue to favour a gentle $ decline in 2026

Chris Turner

Global Head of Markets and Regional Head of Research for UK & CEE

Francesco Pesole

FX Strategist

Main ING G10 FX Forecasts

	EUR/USD		USD/JPY		GBP/USD
1M	1.18	↑	152	↓	1.34	↑
3M	1.19	↑	152	↓	1.35	↑
6M	1.20	↑	150	↓	1.35	↑
12M	1.22	↑	148	↓	1.36	↑

	EUR/GBP		EUR/CHF		USD/CAD
1M	0.88	↑	0.92	↓	1.38	→
3M	0.88	→	0.92	↓	1.39	↑
6M	0.89	↑	0.93	→	1.38	↑
12M	0.90	↑	0.95	↑	1.36	→

EUR/USD: Grinding higher

Spot	One month bias	1M	3M	6M	12M
EUR/USD 1.17	Mildly Bullish	1.18	1.19	1.20	1.22

It has been very hard work, but EUR/USD is managing to grind higher. December seasonality may be at work, but the core driver must be lower short-term rates which are cheapening up hedging costs for foreign investors in the US bond market. Remember, eurozone investors hold around EUR800bn of Treasuries and EUR1.5trn of other US debt securities.
Given the poor performance of the dollar as a safe-haven currency in April, we expect investors to use lower US rates to increase hedge ratios. We look for three Federal Reserve cuts from here.
The European Central Bank should keep its policy rate unchanged for the next two years. Fiscal stimulus and lower energy should help the euro.

USD/JPY: Undervalued yen may stay undervalued

Spot	One month bias	1M	3M	6M	12M
USD/JPY 155.00	Mildly Bearish	152.00	152.00	150.00	148.00

Many are asking why USD/JPY is staying so bid, when US-Japan rate differentials have turned so much lower. The answer seems to be a combination of fiscal concerns, politicians favouring reflationary policy, the carry trade and perhaps impending Japanese direct investment into the US.
However, we think lower US rates will be meaningful for the Japanese buyside, where we would expect a shift to hedged versus unhedged overseas bond investments.
We’ve been asked whether JPY is losing its safe-haven appeal. We’ve replied ‘no’, in that the positive risk environment has yet to be properly tested. We’d back the yen if the AI bubble bursts.

GBP/USD: Budget event risk survived

Spot	One month bias	1M	3M	6M	12M
GBP/USD 1.34	Neutral	1.34	1.35	1.35	1.36

Sterling is enjoying a mini renaissance after Chancellor Rachel Reeves managed to deliver a credible budget. The £22bn of fiscal headroom means that there should be a little less panic in the Gilt market should growth disappoint. However, there are still substantial political risks for UK asset markets in 1H26, with both Prime Minister Keir Starmer and Chancellor Reeves remaining under pressure.
We think sterling will come a little lower again if the Bank of England cuts rates on 18 December, as we expect. The governor, Andrew Bailey, is the swing voter and has probably seen enough to back a 25bp cut.
We look for two further BoE cuts in 2026 (matching the Fed) with GBP/USD probably staying in the middle of a 1.31-1.37 range.

EUR/JPY: Reaching its limit?

Spot	One month bias	1M	3M	6M	12M
EUR/JPY 181.00	Mildly Bearish	179.00	181.00	180.00	181.00

EUR/JPY remains incredibly strong at levels over 180. Japanese politics has been the driver this quarter and it is dangerous to call a top in this cross. Typically, it does correlate well with global equity markets and when the big correction comes, EUR/JPY will likely trade a lot lower.
Until then, EUR/JPY is expected to trade near 180. We do look for a 25bp Bank of Japan hike on 19 December and then we look for two further hikes in 2Q and 4Q next year. This should help to limit gains above 180 in this cross – but not to deliver a decisive turn.
The yen is far more undervalued than the euro, but we think 2026 could be a year of low volatility keeping the yen soft.

EUR/GBP: Downside looks limited

Spot	One month bias	1M	3M	6M	12M
EUR/GBP 0.87	Mildly Bullish	0.88	0.88	0.89	0.90

EUR/GBP has recently been drifting lower on the back of a short sterling squeeze. We doubt sterling needs to rally too far, however. We expect good demand to re-emerge in the 0.8700/8750 area as the BoE brings the policy rate from 4.00% to 3.25%. UK wage and price pressure is slowing and should create a better environment for the BoE to cut early next year.
On the eurozone side, the million dollar question is whether fiscal stimulus is for real. Our team believes it is a question of when, not if, stimulus comes through and eurozone growth should gain momentum through the year.
Politics is the worry for sterling – and it’s not particularly cheap.

EUR/CHF: SNB hoping it doesn’t have to cut

Spot	One month bias	1M	3M	6M	12M
EUR/CHF 0.94	Mildly Bearish	0.92	0.92	0.93	0.95

EUR/CHF is holding above the lows of the year at 0.92 but does not want to move higher. Despite pressure from Washington, it is hard to see a Ukraine ceasefire anytime soon and thus a big EUR/CHF rally on a peace deal looks unlikely. Instead, we think CHF is receiving ongoing support from global investors losing faith in fiat currencies and government bonds.
The Swiss franc is undoubtedly very strong and keeping CPI lower than the Swiss National Bank wants or indeed forecasts. However, the bar for the SNB to cut rates is exceptionally high. That outcome looks unlikely unless the ECB shocks with a new round of quantitative easing.
A European recovery next year is the best hope for a EUR/CHF rally, given that the SNB’s room for FX intervention is limited.

EUR/NOK: Good seasonality ahead for NOK

Spot	One month bias	1M	3M	6M	12M
EUR/NOK 11.78	Mildly Bearish	11.60	11.50	11.50	11.30

Norway’s core inflation jumped to 3.4% in October as the headline rate slowed less than expected to 3.3%. While this acceleration may well prove to be temporary, it will likely keep Norges Bank firmly on the hawkish side into the new year.
Our inflation view remains more benign than Norges Bank’s for 2026, and we still think two or three rate cuts in 2026 are on the cards. That said, risks are clearly towards fewer and later cuts.
NOK has lagged most of the G10 in the past month due to risk instability and oil depreciation. However, we are entering a seasonally bad period (Dec-Jan) for EUR/NOK, and we expect a return to 11.50-11.60 by February thanks to NOK’s strong fundamentals and attractive carry.

EUR/SEK: Gradual depreciation can continue

Spot	One month bias	1M	3M	6M	12M
EUR/SEK 10.97	Mildly Bearish	10.90	10.80	10.70	10.50

Despite the sub-consensus November inflation print in Sweden, the chances of another cut by the Riksbank remain low after the pre-emptive 25bp reduction to 1.75% in September.
The krona has shown relatively good resilience during risk-off episodes in November, reaffirming its improved stability. Should a peace deal in Ukraine be ultimately agreed, the benefits for the krona should be clearly visible in USD/SEK but less so in EUR/SEK given the euro’s own geopolitical exposure.
We continue to expect further gradual EUR/SEK depreciation in line with medium-term overvaluation and the improved economic outlook for Sweden.

EUR/DKK: Nearing intervention territory

Spot	One month bias	1M	3M	6M	12M
EUR/DKK 7.47	Neutral	7.47	7.46	7.46	7.46

EUR/DKK has continued to trade on the strong side, but the Danish central bank refrained again from intervening in the FX market in November.
However, we aren’t far from levels that would warrant some FX selling to support the krone. Taking the late 2019 - early 2020 intervention rounds as a benchmark, 7.470 may well be the line in the sand.
We therefore think EUR/DKK won’t be able to trade much higher from here. The central bank has ample firepower to intervene given the huge increase in FX reserves to USD115bn.

USD/CAD: Don’t rule out a 1Q26 cut

Spot	One month bias	1M	3M	6M	12M
USD/CAD 1.39	Mildly Bearish	1.38	1.39	1.38	1.36

The upside surprise in Canada’s 3Q GDP (2.6% annualised) was primarily due to a large rebound in trade. However, household spending was down 0.4%, suggesting the underlying story remains weak and more aligned with the Bank of Canada’s business survey.
Jobs figures also surprised on the upside, with unemployment dropping sharply to 6.5%, with 54k jobs added in November. We think unemployment is due a rebound but for now, the BoC is unlikely to signal any extra easing.
A rate cut in 2026 remains a possibility, although rapid jobs losses are probably needed at this stage. Our main concern for the Canadian dollar remains the upcoming USMCA renegotiations, and we are reluctant to chase USD/CAD drops much further.

AUD/USD: RBA cuts may be over

Spot	One month bias	1M	3M	6M	12M
AUD/USD 0.66	Neutral	0.66	0.67	0.68	0.69

We have reached our AUD/USD year-end target of 0.66 a few weeks in advance. The risks remain skewed to the upside (seasonality, poor US data), although our short-term fair value shows that the pair now has just over 1% overvaluation, signalling a lot of positives are in the price, for now.
We have revised our call for the Reserve Bank of Australia and no longer expect a rate cut in 2026. The jump in October inflation will, in our view, keep policymakers even more cautious with easing, especially when paired with good growth and a still tight labour market.
Good carry and strong fundamentals still point to AUD/USD appreciation throughout 2026.

NZD/USD: On more stable ground

Spot	One month bias	1M	3M	6M	12M
NZD/USD 0.58	Neutral	0.58	0.58	0.59	0.60

The Reserve Bank of New Zealand delivered a hawkish cut in November, in line with our expectations. Rate projections clearly signal that the current 2.25% is the terminal rate, and while there are some risks on the dovish side associated with new Governor Anna Breman (a former Riksbank dove) taking over, we agree with the RBNZ’s call.
A clearer sense that rates have finally bottomed out after a number of dovish surprises lays the ground for further support to the New Zealand dollar in 2026, assuming a stable risk sentiment.
We have revised our NZD/USD profile slightly higher but continue to see the Aussie dollar as a broadly more attractive currency into mid next year.

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Authors

Chris Turner

Global Head of Markets and Regional Head of Research for UK & CEE

Francesco Pesole

FX Strategist