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Outlook

10 Dec 2024

2025 Projections

We think currencies will follow non-linear paths in 2025 against a highly-turbulent global economic backdrop. Note: Our forecasts are predicated on an outlook in which the US staves off recession, a financial crisis does not occur, and major global geopolitical shocks are avoided. Among other risks, an unexpectedly-abrupt economic deceleration, plunge in asset prices, or outbreak of war could see safe haven and funding currencies—principally the dollar—outperforming their rivals, and throwing the assumptions outlined in this report into question. 

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10 Dec 2024

The euro looks doomed to grind lower, yet there are reasons to expect a shift in fortunes as the dollar’s outperformance fades

The euro area is stuck in a deepening economic quagmire. An export-dependent and manufacturing-heavy growth model is coming under strain as geopolitical tensions keep energy prices elevated, China moves up the value chain and dumps excess industrial capacity into the rest of the world, and the US becomes more isolationist. Domestic political dysfunction is worsening, productivity growth is sluggish, and growth remains lacklustre, trailing far behind the US.  Against this backdrop, the odds are stacked against the common currency. The European Central Bank, responding to deteriorating growth and inflation prospects, is seen slashing rates to 2% or lower in the...

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10 Dec 2024

Mexico’s relationship with the US may be on a rocky footing, but this isn’t the country’s first rodeo

Peso fundamentals are relatively supportive: the economy is growing at a solid clip, inflation remains well-contained, fiscal and current account deficits look manageable, and the central bank’s policy rate remains well above its US equivalent. Political uncertainty is falling after the summer election and this autumn’s judicial reforms.  The outlook nonetheless hinges on whether US President Trump follows through on campaign pledges to restrict immigration and apply taxes on products imported from Mexico. Heavy tariffs could inflict serious damage on the country’s export sector, and if migrants are sent home, remittances could plummet, depriving the economy of one of its most...

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10 Dec 2024

A repricing in policy expectations could weaken sterling in the early new year, but economic resilience points to a recovery ahead

The British pound faces a turbulent outlook in 2025, shaped by conflicting domestic and international forces: After a distinct loss of economic momentum in 2024, labour markets are softening, putting wage gains under pressure and driving inflation expectations lower. We think the Bank of England will cut rates more aggressively than markets anticipate in the near term, limiting the extent to which interest differentials can support the currency against the euro.  A period of outperformance has not been sustained.Contribution to monthly change in GDP, 3-month moving average, %January 2022 – September 2024 But the UK’s services-focused industrial structure offers some...

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10 Dec 2024

Geopolitical and macroeconomic headwinds could blow harder in 2025

The Chinese renminbi should steadily weaken against the US dollar, and struggle against other currencies such as the Australian dollar, Japanese yen, and euro over the next few quarters. In our judgement, the pricing-in and enacting-of US President-elect Trump’s trade policies will likely see a greater risk premium attached to the yuan, given the economic headwinds the protectionist measures may create for an already structurally-unbalanced Chinese economy, which has stumbled through its post-COVID recovery. There’s a lot more to China’s exports than the USShare of China’s goods exports, %December 2013 – October 2024 Headwinds could increase as policymakers attempt to...

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