January 02, 2025

“2024 was another remarkably strong year for the US dollar, which rose nearly 7% as the world’s largest economy continued to outperform expectations and the US electorate voted Trump back into the White House. The biggest losers were JPY, NOK, and NZD, all of which dropped by over 10%, and sterling posted the smallest loss at 1.4%.”

Tim Hallinan – Trading Director

USD

The dollar is holding near a two-year high this morning after grinding higher in the final two days of 2024. The data calendar returns with some key events next week, including the December payrolls report, but there is one date in particular that is driving the market right now: Trump’s inauguration on the 20^th. Remember that a combination of a) higher growth and inflation expectations under Trump’s policies, and b) the continued strength in the economic data over the past quarter, are behind expectations for less than two full rate cuts this year. Add to that the softer picture in Europe, and we have a very strong dollar heading into 2025. Any day one executive orders and policy announcements are going to set the tone for his presidency and could be a big risk event for FX. For today, we get an unemployment claims figure this afternoon.

GBP

Sterling is trading a touch softer this morning and approaching its lowest since May last year. GBP/USD was trading flat on the year as recently as early December and, while sterling finished as the second-best performer in the G10 overall, a double hit from a hawkish Fed and a slightly dovish Bank of England last month meant that it sank 1.4% on the year. Pricing for the Bank of England still much more closely resembles the Fed’s path rather than the ECB for this year, but it is now expected to cut by 15bps extra since three voted for a cut last month. There is a final manufacturing PMI today, and then attention will turn to the fresh GDP, labour market, and inflation data over the coming weeks.

EUR

The euro has suffered from a couple of low-liquidity selloffs so far this week as markets turn their attention towards Trump’s second term this year. An upside CPI surprise on Monday saw inflation in Spain rise to 2.8%, hinting at some stickiness in the German and eurozone figures early next week. That said, the market is still pricing in some four or five rate cuts this year, compared to around two for the UK and the US.

Markets

Global stocks trimmed their strong 2024 performance as they locked in a weak December yesterday. The S&P 500 sank 2.6% last month but rose 24% overall last year, compared to an 8% annual gain for the Euro Stoxx 50 and 20% for Japan’s Nikkei.

Main Economic Events (All Times CET)

2:30pm: US Unemployment Claims
3:30pm: Canadian Manufacturing PMI

To learn more about Ballinger Group, please visit our website or our LinkedIn page.