The expectation of US dollar depreciation strengthens; Mitsubishi UFJ is optimistic that the euro will rise to 1.24.

Mitsubishi UFJ Financial Group’s latest forecast has attracted market attention: the US dollar is expected to continue depreciating through 2026, with the EUR/USD exchange rate projected to rise from the current 1.169 to 1.24. This not only reflects the underlying logic behind the Fed’s policy shift but also hints at new opportunities that risk assets may face.

The True Signal Behind the Fed’s Policy Shift

The Policy Dilemma Behind Employment Data Falsification

Recent statements by Federal Reserve Chair Jerome Powell reveal a key issue: since April, the number of new jobs added in the US may have been overestimated by 6,000 per month. While this figure seems small, in the context of macro policy-making, it is highly significant.

Analysts at Mitsubishi UFJ point out that the US is actually losing jobs. This contrasts sharply with the market’s previous optimistic expectations for the US economy. When employment data is confirmed to be systematically overstated, the Fed’s previous policy decisions based on that data need to be reevaluated.

The Potential for Larger-than-Expected Rate Cuts

Based on the employment data revision, the Fed’s rate cut magnitude could exceed current market expectations. What does this mean? The attractiveness of the US dollar as a high-interest-rate asset will further decline. When the Fed cuts rates more aggressively, the yield advantage of the dollar relative to other currencies diminishes.

Analysts emphasize that, with monetary policy still relatively tight, a significant improvement in the US economic outlook will be rare. This judgment suggests that the Fed may face a dilemma: weak economic fundamentals but limited policy space. In this context, further easing becomes a possible option.

Market Implications of Euro Appreciation

Specific Expectations for Exchange Rate Changes

Rising from 1.169 to 1.24 indicates that the euro will appreciate by about 6% over the next nine months. This magnitude is significant for the forex market, reflecting strong expectations of dollar depreciation.

Reasons for Relative Strength

Euro appreciation is not only the flip side of dollar depreciation but also reflects the relative stability of European economies and policies. When US employment data faces issues and the Fed needs to cut rates more aggressively, the European Central Bank’s stance remains relatively steady, reinforcing the euro’s attractiveness.

Potential Impact on the Cryptocurrency Market

Dollar Depreciation Usually Benefits Risk Assets

Historically, a weakening dollar environment tends to favor risk assets. When the dollar’s appeal as a safe-haven asset declines, investors seek higher-yielding assets, including cryptocurrencies.

This aligns interestingly with reports that the Bank of Japan may adopt XRP for cross-border payments. When traditional monetary policy faces pressure and dollar depreciation expectations intensify, the value of efficient cross-border payment solutions becomes more apparent.

The Era of Cross-Border Payment Innovation

Japan’s interest in XRP aligns with the demand for more efficient payment channels amid a dollar depreciation environment. A weaker dollar increases the risk of exchange losses, making a cross-border payment system capable of settling in 3-5 seconds at lower costs more attractive.

Although the news of Japanese banks adopting XRP remains market speculation for now, the underlying logic is consistent: in an environment where the dollar is relatively weakening and traditional finance needs innovation, blockchain-based payment solutions are gaining more attention.

Summary

Mitsubishi UFJ’s forecast reflects a clear logical chain: systemic overestimation of US employment data will force the Fed to intensify rate cuts, leading to dollar depreciation and euro appreciation. This process is expected to continue through 2026, with the EUR/USD rising to 1.24.

For market participants, the key focus is on the certainty of the Fed’s policy shift. If rate cuts indeed surpass expectations, dollar depreciation will become the main trend of the year. In this context, risk assets may find support, and cross-border payment innovations will gain further momentum. In the coming months, the Fed’s policy statements and subsequent employment data revisions will be critical points to watch.