November 16, 2024 at 03:06PM
Credit Agricole argues that despite similarities, 2025 will not be a redux of the USD’s 2018 rally driven by Trump-era policies. Differences in economic conditions, monetary policy, and the USD’s current strength suggest that the dynamics underpinning the dollar’s movement will differ significantly from 2018.
Key Points:
Divergent Economic and Monetary Conditions:
In 2018, strong US growth and rising inflation prompted the Fed to hike rates by 125bps.
In contrast, 2025 is expected to see slowing US growth and inflation, leading to further Fed rate cuts, which could temper USD strength.
Potential Stagflationary Impact:
The combination of trade tariffs and fiscal stimulus in 2018 supported growth, inflation, and higher US yields.
In 2025, this same mix could result in stagflationary pressures, complicating but not halting the Fed’s expected easing cycle.
Stronger USD Starting Point:
The USD is significantly stronger now than it was in 2018, which could constrain further gains.
A sharp EUR/USD decline closer to parity could limit the ECB’s ability to ease further, reducing divergence-driven USD upside.
Conclusion:
Credit Agricole acknowledges that Trump’s policy agenda has added upside risks to the USD, but a repeat of 2018’s rally is unlikely. Slower US growth, stagflation risks, and the already strong USD limit the potential for another broad-based surge, suggesting a more nuanced outlook for 2025.
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This article was written by Adam Button at www.forexlive.com.
