DXY: FX markets quiet as USD volatility hits yearly lows – ING

US Dollar (USD) weakness is expected to continue into year-end, supported by seasonal flows and stable Treasury markets. Commodity currencies are performing well, while EUR/USD and USD/JPY target 1.18 and 152, respectively, amid subdued FX volatility, ING's FX analyst Chris Turner notes.

Commodity-linked currencies outperform ahead of year-end

"FX markets are relatively quiet. US interest rate volatility embodied in the MOVE index has dropped back to the lows of the year. Certainly, the stability of the US Treasury market has been one of the big surprises of 2025. As we move nearer to year-end in FX, we see the commodity currencies doing pretty well – or more precisely, the commodity currencies backed by metals."

"Looking at two-year US real interest rates derived from the two-year inflation swap, real rates actually rose 25bp between September and November, largely on a 50bp decline in inflation expectations. The scenario from a Hassett pick would surely be lower real rates as inflation expectations pick up. This should deliver a weaker dollar."

"For the short term, however, there seems to be a consensus view that the dollar will weaken into year-end on seasonal flows. That is our view too, and why we have year-end targets at 1.18 and 152 for EUR/USD and USD/JPY, respectively. The longer DXY can trade under 99.00, the more likely it is a drop to the 97.80/98.00 area."