Currency Quarterly Q4 2025 | Insight Investment

The near-term outlook is benign, but beyond the early months of 2026 the range of potential outcomes appears wide. While growth is healthy and trade tensions have reduced, the US consumer is at risk of further pass through from price rises and weaker job creation. This risks eroding the US dollar’s cyclical support and exposing its structural weaknesses.

More broadly, we expect a more pro-cyclical tilt to FX, and so we prefer to express overweight in currencies exposed to this cyclical upside. The largest single risk to this positioning is that the Federal Reserve cuts less than we expect.

The Alt Risk Premia model also holds a short USD exposure driven by the Momentum and Value – Carry and Quality are only partially offsetting the positive USD exposure. Elsewhere, our model favours longs in EUR, NOK, and AUD versus shorts in CAD, SEK, CHF, and GBP.

The alpha view

Given the uncertainty around the policy outlook and extended USD short positioning, our macro exposure is limited. We have a modest USD short, with a bias to add to this on rallies.

The Alt Risk Premia model also holds a short USD exposure driven by the Momentum and Value – Carry and Quality are only partially offsetting the positive USD exposure. Elsewhere, our model favours longs in EUR, NOK, and AUD versus shorts in CAD, SEK, CHF, and GBP.

The overall portfolio seen in Figure 1, is short USD, but with only a moderate beta.

Figure 1: Insight currency absolute return exposure

Source: Insight. Data as at 31 December 2025. Note: dark green dot shows aggregate position.

Longer-term valuation overview

For less agile longer-term investors whose investment decisions lean more heavily on valuation metrics, a few points can be made.
• SEK and GBP, and to a smaller degree NZD and CAD are expensive;
• JPY looks very cheap;
• The USD looks close to fair value.

Figure 2: Local currency overvaluation (+) and undervaluation (-) versus USD

Source: Insight. Data as of 31 December 2025.