The start of the year was complicated for the dollar index. In the week ending 26 January, the dollar staged its biggest weekly fall since November 2023. The reason: investors had massively bet on an appreciation of the dollar because of Trump’s victory and, after a strong rally, they took profits. Added to this was an outflow from US equities, especially technology stocks, which tended to drive down the greenback. Will this depreciation continue? If the dollar follows the same trend as in Trump’s first term, a fresh appreciation may be in the offing in February.
The return of the trade war means a fall in the euro. Forex traders are expecting a complex tug-of-war between Washington and Brussels. It's a matter of weeks. European negotiators have already compiled a list of American goods that they could buy in larger quantities, which could rebalance the trade balance between the eurozone and the United States somewhat. It would also be a public victory for Donald Trump without necessarily entailing a high financial cost for the monetary union. It's an intelligent strategy. On the other hand, it is clearly bearish for the single currency.
Sterling warrants caution. The UK could be headed for a “debt death spiral”. This is why: annual interest payments on UK debt are already very high – more than £100 billion per year. And when existing debt has to be rolled over, it will be replaced by new debt with higher interest rates because of the increase in borrowing costs. This could lead to tough choices, such as austerity. It is thus potentially negative for the UK currency.
Sterling has rebounded slightly in recent days. But the underlying trend remains downward. Foreign investors are still concerned about the state of UK government finances. The UK currency is not immunised against rising yields, a trend affecting all developed countries but one that is more acute in the UK because of problems relating to the country’s debt.
The US administration is brandishing the threat of tariffs on China. This is likely to spark high volatility on all Chinese assets, including the CNH, but also on assets dependent on China (most Asian currencies). Be cautious.
The market consensus has not changed one iota on the Swiss franc in recent weeks. The market still expects the Swiss currency to be strong throughout 2025, with an exchange rate that could fall to 0.92.
The derivatives market seems more concerned about the possibility of tariffs on Canada than on Mexico, which explains why the Mexican peso has been more resilient in recent days than the Canadian dollar. Watch out: the Canadian currency may be very volatile in the short term.
Downward trend in the short term, as in recent weeks. That said, Australia is not sheltered from protectionist threats by the Trump administration, notably because of its role as a commodities supplier to China. As such, there could be a little volatility on AUD pairs in the short term. We know that the new US administration is seeking to exert more control on metals trade flows to put pressure on China.
Unsurprisingly, the Bank of Japan raised its policy rate by 25 basis points at its January meeting, taking it to its highest level since 2008. However, it is not certain this will be sufficient to shore up the Japanese yen over the long term.
We are still positioned on the upside in the medium term. The Hungarian central bank left its policy rate unchanged in January for the fourth month running. This was not a surprise for anyone. The monetary policy committee underlined inflationary risks both domestically and internationally because of the new US tariff policy. We expect the monetary status quo to persist in Hungary at least until the end of the second quarter.
Since the US presidential election, the US dollar has followed exactly the same trajectory as in the wake of Trump’s election in 2016. If this trend continues, the dollar may resume its appreciation in February, allowing the USD/HUF pair to claw back the ground lost in recent weeks. To be confirmed.
| DATE | CURRENCY | EVENT |
| 06/02 | GBP |
Bank of England meeting |
| 07/02 | USD | January employment figures |
| 12/02 | USD |
January consumer prices |
| 18/02 | AUD |
Central bank meeting |
| 19/02 | GBP |
January consumer prices |
| 25/02 | HUF |
Central bank meeting |