The ‘US exceptionalism’ trade could run out of runway by the middle of the year
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 tightening is already hitting housing market activity, and labour markets are cooling. After a long period of surprisingly strong growth, consumer demand seems likely to slow, and heightened policy uncertainty stemming from Trump’s unpredictable agenda could erode business confidence, weakening...