Equals corner: all about trump

As a result, the Mexican peso, Canadian dollar, Chinese yuan and the euro have all suffered a tough start to the year with the US dollar being the biggest benefactor, climbing to two year highs when measured against a basket of currencies.

The US dollar has also benefitted on account of the ‘exceptionalism’ of the US economy when compared to its peers and with Donald Trump’s policies seen as inflationary for the economy, markets are now pricing in less expected rate cuts by the Fed this year, providing further demand for the US dollar. Whilst Trumps exploits for tariffs are now being seen by markets as a means of renegotiating trade agreements, the headlines will likely continue to drive dollar demand. The Trump administration has given itself until the 1st April 2025 to assess its current trade agreements and deficits.

As mentioned above the euro has not started the year well on a combination of poor economic growth going into the end of 2024 as well as the continued threat of trade tariffs by the US. Whilst some of the data in January has suggested that economic activity has improved, the single-bloc currency continues to be vulnerable to any threat of tariffs on the economy and for now the outlook remains negative for the currency.

The pound has had a mixed performance to start the year compared to its stellar performance in 2024. Economic growth slumped towards the end of 2024 with the likelihood the economy contracted by 0. 1% in the last quarter of the year. In its most recent monetary policy meeting (February) The Bank of England elected to cut interest rates to 4. 5% but also sounded out a big warning sign on the economy downgrading its growth forecast for this year from 1. 5% to 0. 75% and with 2 members of the committee voting to cut rates by 0. 50%. Overall the meeting was considered to be dovish and markets are now beginning to price in more rate cuts by the Bank than what was previously forecasted. Overall positive sentiment on the currency is beginning to wane and we would expect the pound to be limited in any upside gains and should stagflation risks rise then there would be a case we see the pound struggle this year