May 2025 - Monthly Economic Outlook

Gain an overview of the latest developments on the currency market and anticipate fluctuation risks.

A risky summer?

Big monetary upsets usually occur in August when everyone is on holiday. This was the case for the end of the dollar’s convertibility into gold in 1971 and the triple devaluation of the Chinese yuan in August 2015. Will the summer of 2025 go down in the history books as the moment when the US devalued the dollar by 15% or 20%? It is hard to say today. But everyone clearly fears this scenario, explaining the dollar’s fall against other major currencies at the height of this risk aversion period. The reverse usually occurs: the dollar appreciates in such periods. It is obviously impossible to know what the Trump administration will decide to do. But businesses have the possibility of protecting themselves from this catastrophic scenario by adopting good currency hedging. That is the good news.

EUR/USD

High: 1.1443 Low: 1.0778 Change: +4.61%

We think the rotation from US assets into European assets and the dollar’s lack of appeal as a safe haven continue to explain the overvaluation of the EUR/USD. We have an initial target of 1.15. Monetary policy is a secondary variable in all this.

EUR/GBP

High: 0.8686 Low: 0.8328 Change: +1.38%

We expect the Bank of England to cut its base rate by 25bp in May. The UK inflation rate has fallen from 2.8% to 2.6%, below the central bank’s 2.7% forecast, raising the probability of a cut.

GBP/USD

High: 1.3447 Low: 1.2694 Change: +2.90%

This pair is on an upward trend, mainly because of current wariness of the US dollar. A breach of the 1.3250 resistance line in April should pave the way for a fresh rally up to the resistance point of 1.3550.

EUR/CNH

High: 8.4354 Low: 7.8429 Change: +4.54%

We foresee further rate cuts by the PBOC, with a terminal rate of 1.10% at the end of 2025. A devaluation of the Chinese yuan in response to US trade policy is still not on the cards, in our view.

EUR/CHF

High: 0.9573 Low: 0.9217 Change: -1.86% 

The Swiss currency recently hit a fresh high against the US dollar at CHF0.80 for USD1. This is set to add to the difficulties of the Swiss National Bank (SNB). The money market expects the SNP to cut its policy rate to 0% in June. But it could go further by restoring negative rates, as it did between 2014 and 2022. This is already priced in by the bond market, since the yield on short-dated Swiss sovereign bonds is back in negative territory. This is obviously an anomaly and demonstrates the extent to which the current economic and financial environment is unprecedented. From a growth standpoint, the strong franc (against both the euro and the dollar) is clearly a new currency for the Confederation. Keep in mind that Swiss exporters face “reciprocal” tariffs of 31% imposed by the Trump administration, which will inevitably erode their margins.

EUR/CAD

High: 1.5935 Low: 1.5384 Change: +0.27%

The Bank of Canada left its interest rates unchanged at its last meeting in April and gave very little guidance about what comes next amid high trade uncertainty. However, it maintains an accommodative policy stance, and we expect the negative impact of US tariffs on growth to result in two further rate cuts in June and July.

EUR/AUD

High: 1.8560 Low: 1.7111 Change: +2.03%

We expect the Reserve Bank of Australia to cut rates by 25bp in May, followed by additional easing of 75bp until February 2026. Any loosening in May will hinge on good news on the inflation front.

EUR/JPY

High: 164.19 Low: 159.03 Change: +1.10%

We now expect the Bank of Japan to adopt a wait-and-see attitude at its May meeting. We still expect it to raise rates in July if the inflation trajectory remains positive.

.

EUR/HUF

High: 408.94 Low: 396.60 Change: +1.94%

Despite profit taking at the end of April, the trend is still upward and we expect the pair to test the threshold of 410 again in the coming weeks. It had already crossed it less than a fortnight ago.

USD/HUF

High: 361.58 Low: 352.55 Change: -0.34%

Three main factors explain the dollar’s depreciation: expectations that the US Federal Reserve may be forced to loosen its monetary policy sooner than planned after the unexpected contraction in US GDP (-0.3% in Q1), concerns of a unilateral devaluation of the dollar, and the trade war.

EUR/RON

High: 5.0135 Low: 4.9560 Change: -0.02%

Romanian authorities are likely to continue keeping a tight rein on fluctuations in the EUR/RON until concerns about the domestic fiscal situation and the trade war have receded. A weak and gradual depreciation of the Romanian leu, coupled with prudent rate cuts, is our baseline scenario for the second half of 2025, even if postponements until 2026 cannot be ruled out.

USD/RON

High: 4.6141 Low: 4.3029 Change: -4.07%

Surprisingly, the Romanian currency is appreciating sharply against the US dollar in a context of risk aversion, without this being explained by a direct intervention in the currency market by the Romanian central bank. The backdrop is completely unprecedented. In our view, wariness of the dollar will persist in the months ahead. We forecast an additional dollar depreciation of around 7-10%.

Economic Calendar