The Canadian dollar’s underperformance has deepened over the last two years. Soft commodity prices, subdued investment, and rising household borrowing costs—the heaviest in the G7—are weighing on economic growth, forcing the central bank to ease policy more aggressively than the Federal Reserve. Donald Trump’s imminent return to the White House has reignited trade uncertainties, putting the exchange...

The consensus expects the dollar to outperform again in 2025, and there are good reasons to stick with the herd. The US economy is demonstrating remarkable resilience, defying expectations for a policy-induced slowdown. Household balance sheets remain solid, labour markets are tight, and real disposable income is climbing—bolstering consumer spending. A supportive fiscal stance, coupled with advances...

Both Donald Trump and JD Vance have expressed a desire to weaken the dollar, but deliberate efforts to achieve this look unlikely to succeed: Fiscal tightening, which could weaken growth and lower relative interest rates, appears improbable given the incoming administration’s focus on tax cuts and sustained government spending.  The Federal Reserve is legally and structurally insulated against...

Starting conditions today differ starkly from 2017. Government finances are far more stretched, limiting the scope for new fiscal stimulus. Inflation remains somewhat elevated, forcing the Federal Reserve to maintain tighter monetary policy. Higher interest rates are biting: job creation has slowed, the housing market has weakened, and businesses are cutting back on investment.  Government finances...

The US dollar is poised for a promising start to 2025, buoyed by a confluence of supportive factors. Strong domestic fundamentals, a relatively-hawkish Fed, optimism surrounding Donald Trump’s electoral victory, and a weak economic backdrop in the rest of the world should underpin incremental gains.  But the honeymoon is unlikely to last. The delayed impact of the Fed’s aggressive post-pandemic...

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...

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,...

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...

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...

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...