Continued dollar strength?

Since the U.S. election in November, the U.S. dollar has been performing strongly, rising to its highest level against a basket of currencies in over a year.  Positions data for our FX futures contracts indicates that long U.S. dollar positions (i.e., short FX futures positions) are being solidified by asset managers. This is understandable on the back of optimism in the manufacturing sector bouncing back amid possible further rate cuts in 2025, a stock market buoyed in part by likely corporate tax cuts and a resilient economy. But can this hold out in the longer term? 

Asset Managers FX Futures - Long USD Exposure
Source: CFTC, CME Group

Our FX platforms for spot, non-deliverable forward contracts (NDFs) and futures are frequently the primary pricing reference point for the industry and provide access to trading and risk management whatever your view on the dollar’s prospects. View our analysis of the developments in the U.S. economy and beyond.

Further euro weakness?

Governments in France and Germany faced significant setbacks in recent weeks, and there is a strong likelihood that weakened governments in both countries could lead to policy stalemates in 2025. Germany and France are the largest and second-largest economies in the euro area. While euro interest rates have been slowly trending lower, economic growth in the eurozone has been relatively weak.  In this scenario, the path for the euro foreign exchange rate could be challenging. 

The EUR/USD rate is the most actively traded FX currency pair, and this rate may be led by policy developments in the U.S. as described above.  At CME Group, euro cross-rates against all  other major currencies are available both in the futures market and on the EBS spot platforms, and this allows euro positions to be managed across a range of domestic and international scenarios, not just developments in the United States.

Asian currencies

In 2024, our Asian currency markets continued to see strong growth. The central bank interventions in the Japanese yen market in the summer that spiked trading activity demonstrated the liquidity available on our platforms, and it was widely reported that CNH volumes on EBS reached record levels over the year. While the policy path of the Bank of Japan for 2025 is unclear, Asian currencies are expected to be actively traded in 2025 as  Asian economies account for over 35% of global exports and foreign direct investment in Asia continues to outperform the rest of the world. In addition to supporting spot Asian currency pairs, EBS is also the main trading venue for Asian NDF trading. Moreover, CNH is now available to trade in our FX Link service. There are expectations for the Chinese yuan to be devalued in the event the new U.S. administration executes its plan to impose import tariffs on China in 2025.

FX volatility

With new governments in America and France, elections in Germany scheduled for February and ongoing conflicts in the Middle East as well as between Russia and Ukraine, there could be a potential uptick in volatility in FX markets in 2025. Our CVOL indices provide a direct assessment of this. In 2024, CVOL indices for major currencies were generally fairly stable, except for the Japanese yen, and to a lesser extent the Swiss franc.

G5 FX CVOL history (FXVL)
Source: QuikStrike

CVOL indices are derived from prices in our FX options markets.  These provide a centrally cleared, anonymously traded marketplace to manage volatility exposure.  The recently announced partnership with Digital Vega provides an alternative workflow for privately negotiated deals that are cleared at CME Group.

FX Spot+ launch

At CME Group, we are looking forward to the launch of FX Spot+. The launch of the new FX trading platform will be a great addition to our FX suite of products. 

FX Spot+ will allow the liquidity in our futures market, created by the collective inputs of large and small investors from a wide range of backgrounds, to be translated into a spot FX orderbook for institutional traders.  This combination of the different trading styles of futures and spot markets is unique and innovative. Traders and vendors are already successfully testing connectivity and preparing for the launch, which is scheduled for March 2025.

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All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

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