EUR / USD
EUR/USD closes the year on a firm footing, having advanced around 14% over 2025 as monetary policy divergence increasingly defined the transatlantic FX narrative. The ECB’s decision to keep rates restrictive, with policy held at 2.1%, has contrasted sharply with a Federal Reserve that delivered three rate cuts over the course of the year. This divergence has steadily eroded US dollar support and underpinned euro strength into year-end.
From a technical standpoint, the broader trend remains constructive. The pair continues to trade above all key moving averages, signalling a well-established uptrend, although momentum has moderated, with RSI near neutral levels. Resistance around 1.180 remains the immediate hurdle, while support at 1.165 and the dense moving-average cluster near 1.16 should provide a firm technical base going into the new year.
Looking ahead, the balance of risks remains skewed modestly to the upside. Persistent Eurozone inflation above target keeps the possibility of further ECB tightening in 2026 on the table, while uncertainty around the next Federal Reserve chair adds potential downside risk to the dollar. That said, geopolitical developments, particularly around Ukraine, remain a key source of volatility and could intermittently drive defensive dollar demand, tempering euro gains.
USD / JPY
USD/JPY ends the year with upside momentum intact, trading well above longer-term trend indicators including the 200-day moving average at 149.45 and the 50-day at 155.58. Despite a gradual shift in monetary policy, the yen continues to struggle, increasingly weighed down by fiscal rather than purely interest-rate dynamics.
While the Bank of Japan delivered two rate hikes in 2025, lifting policy rates to 0.75%, the interest rate gap with the US remains wide enough to limit meaningful yen support. More importantly, Japan’s sharply expansionary fiscal stance, including a 122 trillion yen budget, has amplified concerns around debt sustainability and long-term fiscal credibility. As a result, rising Japanese Government Bond yields above 2%, levels not seen since 1999, have failed to translate into sustained currency support.
Looking into 2026, risks remain skewed towards further yen weakness. A break above 157.75 would reopen the path towards the 158.50 area seen earlier this year, while only a decisive shift towards fiscal restraint or a faster-than-expected BoJ normalisation would materially alter the outlook. For now, fiscal concerns and structural outflows appear set to dominate USD/JPY dynamics into the year ahead.
GBP / USD
GBP/USD heads into year-end consolidating between clearly defined technical boundaries, with resistance around 1.35 and support near 1.33, where several key moving averages converge. Sterling continues to draw underlying support from the Bank of England’s cautious policy stance, with rates held at 3.75% despite inflation remaining elevated at around 3.2%. This reluctance to ease prematurely has helped anchor the pound against the dollar.
Looking ahead, relative monetary policy remains a key driver. Expectations for a more pronounced Federal Reserve easing cycle in 2026 contrast with the BoE’s slower and more conditional approach, creating a modest policy divergence that favours sterling on a medium-term view. However, this support is tempered by growing concerns over UK growth momentum, which are limiting the scope for a sustained upside break in the near term.
The dollar’s broad-based weakness through 2025, reflected in a roughly 10% decline in the DXY, has been a clear tailwind for GBP/USD, but this dynamic may become less reliable as political uncertainty in the US builds into the new year. From here, the balance of risks points to a choppier trading environment, with heightened sensitivity around the 1.35 resistance level and scope for increased volatility as markets reassess both UK growth prospects and the evolving US policy and political backdrop.
