Forex Swings: Trading the Dollar's Decline Against Rising Currencies

The foreign exchange market experienced significant price swings year-to-date. Last week, for example, investors adjusted their positions based on Federal Reserve policy expectations and tracked Asian currency market movements. The U.S. Dollar Index closed at 99.54 on 10 October, down -8.88% year to date. The EUR/USD exchange rate reached 1.16121 on 10 October 2025, up 0.42% from the previous day's rate. The Japanese Yen demonstrated different market behaviors when trading against various currency pairs, which generated separate market opportunities for retail traders.

TL;DR

• The dollar has weakened YTD. The U.S. Dollar Index closed at 99.54 on 10 October, down -8.88% year-to-date.

• EUR/USD rose to 1.16121 on 10 October 2025, up 0.42% from the previous day's rate.

• USD/JPY fell to 151.586 on 10 October 2025, down -0.96% from the previous session

• Cross-pair opportunities emerge in EUR/GBP and GBP/JPY as correlation patterns shift.  

Dollar Weakness Persists Amid Policy Expectations

The US dollar continued to face selling pressure across major currency pairs. Markets have assigned a high probability to an October rate cut by the Federal Reserve, maintaining downward pressure on the greenback. This sentiment has contributed to the euro's strength, with the EUR/USD up by 6.19% over the last 12 months.

The dollar index performance suggests that traders may be positioning for continued weakness. The highest EUR/USD exchange rate in 2025 was 1.18677 USD on 16 September 2025, indicating that current levels remain below recent peaks, potentially offering room for further upside movement.

Market participants might consider that weakening price trends will add to the odds of a further FOMC rate cut, particularly if economic data continues to disappoint. The ongoing government shutdown has delayed key economic releases, adding uncertainty to market dynamics.

Japanese Yen Shows Divergent Patterns

The USD/JPY pair displayed volatile behavior throughout the week. The USD/JPY exchange rate fell to 151.586 on October 10, 2025, down 0.96% from the previous session, suggesting selling pressure on the pair. However, the highest US dollar to Japanese yen rate was on 09 October 2025, when 1 US dollar was worth 153.038 Japanese yen, indicating significant intraday volatility.

Japan’s incoming LDP leadership (Takaichi) has signaled potential fiscal stimulus, reducing the odds of the BoJ tightening. The Japanese government has also pledged to watch for excessive volatility, implying possible FX intervention if moves are disorderly. (Source: Reuters)

Cross-Pair Opportunities Emerge

Cross-currency pairs may offer interesting opportunities with potentially lower correlation to dollar movements. As of 10 October 2025, 1 GBP equals 202.361 JPY, with the British Pound having increased by +2.93% year-to-date against the Japanese Yen. The GBP/JPY pair has shown notable volatility, with four consistent days of selling, dropping from last week's close. 

For EUR/GBP, historical data shows in 2025, the highest exchange rate from British Pounds to Euros was 1 EUR = 1.2120 GBP, while the lowest exchange rate was 1 EUR = 0.82472 GBP. These ranges may provide context for current trading levels and potential support and resistance zones.

Considerations

Traders might consider several factors when approaching these currency pairs:

• The US government shutdown continues to block economic data releases, which creates market unpredictability.

• The Fed, ECB, and BoJ maintain separate monetary policies that generate potential opportunities.

• The market uses psychological levels and recent price extremes as essential reference points for trading decisions.

The current market volatility demands that traders maintain proper risk management strategies. Traders need to adjust their position sizes and stop-loss levels according to their risk tolerance and the current market environment.

* Past performance is not indicative of future results. The above are only projections and should not be taken as investment advice.