FX Talking: Playing the long dollar game
The US electorate has spoken and has given Donald Trump the overwhelming mandate to deliver on his promises. These are widely viewed as inflationary and positive for the dollar. Yes, there are risks, but Trump’s plan to grow the US economy – at the expense of the rest of the world – stands to send the dollar steadily stronger through 2025
This election comes at a time of stagnant European growth and huge uncertainty as to whether policymakers can respond with any fiscal stimulus. France is on a major austerity drive and the German government has just collapsed in a dispute over the debt brake. The onus will now fall on the European Central Bank to support the economy and our team now sees rates being cut to 1.75% by the spring. We have revised our EUR/USD targets close to parity by late 2025.
Within the G10 space, we see the Swedish krona as one of the more vulnerable currencies now by nature of Sweden’s open economy and low interest rates. Out-performing in Europe should be the Swiss franc as the Swiss National Bank proves reluctant to cut rates below 0.50%. Commodity currencies may not get hit quite as hard as expected, and it looks like USD/JPY will be pressing 160 if US Treasury yields are heading above 5% next year.
Emerging markets highlights include Chinese authorities trying to hold the line in USD/CNY near 7.20/30. CEE currencies look vulnerable by nature of their exposure to European demand and also the auto sector. Latam currencies had a poor 1.0 and can do so again.
