This year 2025 reveals a paradox in the floating exchange market (Forex), a paradox I can describe as rare. The foundation of currency movements in the foreign exchange market lies in the divergence of monetary policies. In other words, it is the difference in the trajectory of interest rates among the world’s main central banks that usually drives the long-term trend of major USD pairs on Forex.
But this year 2025 shows a rare configuration: the divergence of monetary policies has had almost no effect on FX.
Why? Because the US dollar is (by far) the weakest currency in FX in 2025, even though the Fed has not touched its interest rate and this rate remains the highest among the major central banks, as shown in the main chart of this analysis.
1) In 2025, the divergence of monetary policies has not influenced FX
The table below compares the evolution of the interest rates of the major central banks as well as their inflation status. Except for the Bank of Japan, all major central banks have cut their interest rates several times this year as inflation targets were reached or approached.
The Fed alone has not touched the federal funds rate, and its rate is now the highest among all central banks.
The table below was prepared by analyst Vincent Ganne for Swissquote and offers a comparison of the monetary policies of major central banks in 2025.
The infographic below, sourced from Bloomberg, compares the evolution of central bank interest rates worldwide in 2025.
2) Here is the paradox: the US dollar is the weakest FX currency this year (down 10%) despite the favorable US rates
Not only is the US dollar the only major FX currency that has fallen in 2025, but this decline is significant — a 10% drop.
This fall of the US dollar is in total contradiction with the divergence of monetary policies, which should have led to a stronger dollar against a basket of major currencies. The question now is what trend the US dollar will take if the Fed eventually decides to cut its rate at the end of the year.
3) Ultimately, the role of monetary policy divergence is temporarily suspended as the US economy faces structural uncertainties
• Tariffs and their impact on US economic growth prospects
• Rising US public debt and the fiscal/budgetary policy of the Trump Administration (“Big Beautiful Bill”)
These two structural challenges have neutralized the divergence of monetary policies for this year, but it should regain its influence in 2026, potentially allowing a rebound of the US dollar on FX.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
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Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
But this year 2025 shows a rare configuration: the divergence of monetary policies has had almost no effect on FX.
Why? Because the US dollar is (by far) the weakest currency in FX in 2025, even though the Fed has not touched its interest rate and this rate remains the highest among the major central banks, as shown in the main chart of this analysis.
1) In 2025, the divergence of monetary policies has not influenced FX
The table below compares the evolution of the interest rates of the major central banks as well as their inflation status. Except for the Bank of Japan, all major central banks have cut their interest rates several times this year as inflation targets were reached or approached.
The Fed alone has not touched the federal funds rate, and its rate is now the highest among all central banks.
The table below was prepared by analyst Vincent Ganne for Swissquote and offers a comparison of the monetary policies of major central banks in 2025.
The infographic below, sourced from Bloomberg, compares the evolution of central bank interest rates worldwide in 2025.
2) Here is the paradox: the US dollar is the weakest FX currency this year (down 10%) despite the favorable US rates
Not only is the US dollar the only major FX currency that has fallen in 2025, but this decline is significant — a 10% drop.
This fall of the US dollar is in total contradiction with the divergence of monetary policies, which should have led to a stronger dollar against a basket of major currencies. The question now is what trend the US dollar will take if the Fed eventually decides to cut its rate at the end of the year.
3) Ultimately, the role of monetary policy divergence is temporarily suspended as the US economy faces structural uncertainties
• Tariffs and their impact on US economic growth prospects
• Rising US public debt and the fiscal/budgetary policy of the Trump Administration (“Big Beautiful Bill”)
These two structural challenges have neutralized the divergence of monetary policies for this year, but it should regain its influence in 2026, potentially allowing a rebound of the US dollar on FX.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.