As 2024 draws to a close, the world economy is enjoying a moment of relative stability. Post-pandemic inflationary pressures have eased. Central banks, after aggressively tightening, are cautiously lowering interest rates, reducing the spectre of a policy-induced recession. Cross-asset volatility is subsiding, and key measures of financial stress remain reassuringly low. But this sense of calm conceals areas of vulnerability.

Government deficits have widened alarmingly and sovereign bond markets are reflecting growing unease over borrowing levels. New technologies are redrawing the investment landscape, creating a new set of winners and losers. Financial asset valuations, particularly in the United States, remain strikingly high, stoking fears of a potential market correction.

We think, however, that changing geopolitical dynamics might pose the gravest challenge. The cooperative international order established after World War II—rooted in shared norms of sovereignty, free trade, and democratic governance—is fragmenting.

Great-power rivalry between the United States and China continues to escalate, disrupting global trade networks. Washington’s policies are poised for dramatic shifts as a second Trump administration ushers in an era of economic experimentation. Governments everywhere are recalibrating state-market dynamics, and across the developed world, anti-establishment movements are gaining momentum, threatening further political and economic instability.

Looking ahead, these fault lines are likely to trigger significant dislocations. Trade routes and investment flows that once followed well-trodden paths may be abruptly rerouted.

In currency markets, the US dollar—often both a safe haven and a growth asset—could strengthen initially, buoyed by domestic economic resilience and policy uncertainty in other regions. However, its outperformance is unlikely to persist. A volatile mean-reversion process may unfold as US economic dominance moderates and other economies pursue divergent trajectories. Trading ranges could be wide and volatile.

The global economy’s transition from a synchronised crisis-driven recovery to a more fragmented and unpredictable phase is underway. It’s impossible to know precisely what sort of new world order is being forged in today’s crucible, but there is little doubt that flexibility and resilience will remain the most valuable currencies in the year ahead.