Five FX Pairs You Should be Watching in February 2025 and Why

With the year off to an interesting start, the second month of 2025 is already upon us.

As always, here are five currency pairs to watch in February 2025, alongside some technical and fundamental analysis.

While interest rates remain a somewhat controversial topic across markets, President Trump has not been shy in sharing his opinion on current Federal Reserve policy.

Having campaigned during what was a year of change for world interest rates, the latter half of 2024 saw many major central banks vote to cut for the first time in some years, attempting to strike the ever-delicate balance between taming inflation and stimulating economic growth.

Although, it’s fair to say that not everyone is happy with the current affairs.

Amongst the ranks of critics is none other than the 47th President of the United States, Donald Trump, who has been vocal in his opposition of high interest rates as far back as his 2016 campaign.

Citing inflated energy prices as the true cause of recent inflation, Trump has gone on record saying he will “demand” lower interest rates as part of his campaign material, which appears, at least for now, to have fallen on deaf ears.

As things stand, the Federal Reserve chose to maintain rates in its most recent meeting on January 29th, having cut three times consecutively in the latter part of 2024.

According to the CME FedWatch tool¹, maintaining rates at 4.5% was predicted as the most likely outcome for the first meeting of the year, with most expecting the Fed would adopt a ‘stop-and-see’ approach, cautiously waiting to see how three back-to-back rate cuts have affected inflation.

Lower interest rates, at least at a surface level, are likely to prove more popular with the average loan-having American, but while Trump may not be able to exact his will on Federal Reserve monetary policy directly, how potential trade wars and tariffs will affect inflation is yet to be entirely ascertained.

While Trump continues to push for more control over the Federal Reserve and decisions surrounding monetary policy, the euro currently maintains a headline rate ~1.9% lower than the dollar, with the ECB choosing to cut during their January meeting.

All other factors remaining unchanged; we can expect the current interest rate differential between the euro and the dollar to support EUR/USD weakness in the medium to long term.

Read more: How Interest Rates Create Trading Opportunities & What Drives Currency Movements

• At the time of writing, euro-dollar currently trades around 1.03765. Trading at parity in late 2022, markets will be conscious that current pricing is only ~3.70% above 1.00000.
• On the monthly timeframe, EUR/USD formed a ‘spinning top’ candlestick in January’s trading, which can suggest a potential for a reversal in price action.

A key factor in future monetary policy decisions, markets will be watching closely to see if inflation has responded to previous rate cuts, or if it will continue its year-over-year rise as it did in January.

Generally speaking, a string of higher inflation readings will support the case for higher interest rates, likely causing EUR/USD to trend lower as the dollar strengthens.

With Europe proving no exception, global manufacturing PMIs have recently been a cause for concern.

Being a leading measure of activity amongst goods producers, EU manufacturing PMIs have failed to show any sign of expansion since July 2022, which poses some uncomfortable questions for the European economy.

With recent reports showing better results from their Chinese and American counterparts, the Eurozone will need to follow suit if it wishes to change perceptions of a shrinking economy.

If a streak of poor manufacturing PMI continues, we can expect EUR/USD selling pressure.

Similarly to many of the United States’ other trading partners, the recent flavor of the month for USD/CAD traders has undeniably been the paltry matter of tariffs.

With some mention of a 25% tariff early in his campaign, Trump has recently made good on his pledge to impose a series of levies on Canadian imports, with the White House sharing their motivations: “to hold China, Mexico, and Canada accountable for their promises to halt the flow of poisonous drugs into the United States.”

However, it seems that Trump has more patience than some thought.

Following a conversation with Canadian Prime Minister Justin Trudeau, Trump recently agreed to pause impending levies on Canadian goods temporarily, but not before Trudeau responded in kind, threatening a 25% tariff on American goods, signifying the start of a trade war between the two countries.

With Canada being America’s largest trading partner only after Mexico², any significant changes in the current trade arrangement will likely significantly impact the USD/CAD exchange rate.

Read more: Trump's Tariffs: Impact on USD/CAD, USD/MXN, and North American Trade

On another topic, the Bank of Canada maintains a headline rate lower than the Federal Reserve’s, further expanding the gap in their January decision to cut rates by 0.25%.

With higher interest rates favored by foreign investment, the Canadian dollar can expect to weaken in the long term versus the U.S. dollar, assuming the current situation remains unchanged.

• When writing, USD/CAD trades near five-year highs, roughly around 1.43210.
• On the monthly timeframe, USD/CAD looks set to form a ‘triple-top’ formation, suggesting a potential for change in trend.

The FOMC is expected to meet in Washington on February 19th to discuss monetary policy. Usually scheduled three weeks after a policy decision, the tonality and narrative of the event will offer some guidance on the Federal Reserve’s likely next move.

When simplified, if commentary suggests rates will be maintained, we can expect the USD/CAD to continue its bullish trajectory.

A leading indicator of economic growth, Statistics Canada is expected to release GDP numbers on the last day of the month.

Already boasting strong job numbers, the markets will wait to see how the Canadian economy continues to react to the Bank of Canada’s easing monetary policy.

In a vacuum, a better-than-expected GDP report will likely cause USD/CAD to fall.

Read more: What is GDP and is it an accurate indicator for economic growth?

Gaining over 20% in value compared to this time last year, the past 365 days have been a turbulent time for USD/MXN traders.

Despite strengthening considerably during Biden’s tenure, with the peso trading at its highest value versus the dollar in over 9 years, as campaign efforts increased in mid-2024, the Mexican peso started to lose value, with USD/MXN ultimately reaching multi-year highs on the day Trump was announced as victor.

With the security of the southern border amongst Trump’s most significant talking points in his campaign, it is fair to say that markets have already voted with their feet, with sentiment clear: Trump’s return will likely devalue the Mexican peso versus the dollar.

As for February 2025, however, MXN finds itself in a similar predicament to CAD, with the outcome of potential trade agreements with the United States being a significant deciding factor in how currency trends will continue.

Currently afforded a month-long postponement in any incoming trade tariffs, USD/MXN traders would be well-advised to stay up-to-date on any political developments between the US and Mexico - with Trump most recently renaming the Gulf of Mexico to the Gulf of America.

For now, the two nations remain relatively cordial, but only time will tell how long the current USD/MXN bull run will continue, with markets expected to remain volatile during the current period of uncertainty.

• Despite having traded at nine-year lows 11 months ago, USD/MXN has completely reversed course, currently trading at three-year highs around 20.65180.
• When using the Relative Strength Index on the weekly timeframe, USD/MXN is currently approaching ‘overbought’ territory. If this level is achieved, traders can expect some possible selling pressure.

The Federal Reserve Chair, Jerome Powell, is expected to deliver a report on monetary policy to Congress on Wednesday morning, February 12th.

The event, which occurs every six months, will likely offer some clues about the Federal Reserve’s next steps regarding interest rates.

The final week of the month will see the release of Consumer Confidence Index (CCI) data, a key metric in gauging market sentiment and current levels of optimism, or lack thereof.

With CCI falling in January’s release, developments between the US and Mexico remain one of the most significant determining factors in how people perceive Trump and the success of his policies, weighing on consumer confidence.

If the United States is to avoid a streak of poor CCI results in February’s release, USD/MXN will likely rally.

With much of the market’s attention currently turning towards North America, it’s easy to forget how increased yen volatility has shaped the markets in recent history.

With the last few years seeing a change in Bank of Japan leadership compounded by an eventual U-turn in monetary policy stance, it’s easy to see why USD/JPY was statistically one of the most volatile currency pairs of 2024, as traders come to a new understanding of how the yen fits into the global currency landscape.

Read more: How to Trade USD/JPY: 5 Tips for your Trading

While perhaps not as in vogue as more Trump-centric currency pairs as mentioned above, USD/JPY remains a pair to watch for this month owing to its continued volatility alongside how the pair reacts to safe-haven flow dynamics, an important theme for 2025 in general.

Recently retracing from two-month highs, February remains as significant as ever for the Japanese yen, especially considering the Bank of Japan only recently hiked in its January decision. Rates are now at their highest level since the 2008 financial crisis.

• Having retraced from all-time highs in mid-2024, USD/JPY now trades at around 152.580, around 5.75% lower in value.
• When looking at the daily timeframe, the 50-period simple moving average currently looks set to crossover the 21-period, suggesting a potential for some short-term selling pressure.

Most notably used as a measure of commodity inflation, the Bureau of Labor Statistics is due to release PPI data on Thursday 13th.

With Trump’s promises of cheaper oil, markets will be keen to evaluate the current situation before Trump and his administration implement further policies.

Regarding USD/JPY price action, a higher-than-expected reading will likely introduce some buying pressure.

The Japanese Statistics Bureau is expected to release headline inflation figures on Thursday 27th.

Despite not suffering from as high inflation as some of its European and American counterparts, Japanese CPI data remain an essential metric to follow amid diverging stances on monetary policy between Japan and many other central banks.

With various economic factors coming together in the new year, USD/ZAR remains one of the most susceptible to change throughout February.

Only recently seeing 11-month highs, here are a couple of reasons why dollar-rand should be on your radar this month:

1. Safe haven flows
   Coined as an ‘exotic’ currency by many, the South African rand is amongst some of the most susceptible currencies to risk-on-risk-off flows.
   Typically bought in times of economic optimism and prosperity, currencies like the rand are greatly affected by the current market appetite for risk. Amidst a change in global central bank policy, a new American president, and ongoing political conflict, a major driving force for USD/ZAR will be how the market positions on risk in 2025 - February included.
2. Record commodity prices
   With gold and platinum being major exports in South Africa, changes in pricing can significantly impact economic performance.
   With gold recently hitting all-time highs, not only are mining ventures more profitable, but they may also allow for future growth and expansion, especially considering that precious metals are notorious for their stable value compared to other commodities and currencies.

With so-called exotics renowned for volatility, USD/ZAR is one to keep an eye on, especially when considering the ‘perfect storm’ described above.

• Recently hitting 11-month highs, USD/ZAR remains volatile. Currently trading at around 18.46592, price action will need to find some support to move higher.
• When consulting the weekly timeframe, USD/ZAR currently trades at a historical resistance level formed in early 2020. If price cannot break, USD/ZAR could see a change in trend to the downside.

Released by the US Census Bureau, Valentine’s Day will see the release of Retail Sales numbers.

Falling month-over-month in January, traders will be keen to see if this trend continues, especially with dollar strength a key driving force in USD/ZAR pricing.

When simplified, a better-than-expected result will likely cause the US dollar to strengthen versus the South African rand.

Released monthly by the US Bureau of Economic Analysis, US PCE numbers will be made public on the last day of February 2025.

Used by some as a means to measure inflation separately from the Consumer Price Index, a trend of positive results will likely cause USD/ZAR to rally.

Footnotes

¹ https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

²https://www.census.gov/foreign-trade/statistics/highlights/topyr.html#total