Global Forex Monitor - November 2024

October was marked by a significant rebound of the US dollar against all currencies, with the DXY dollar index recovering to 105, retracing its fall over the summer. The US dollar's rebound was mainly due to an almost 75bp reduction in rate-cut expectations for the Fed next year, with the terminal rate now put at 3.75% at end-2025, against the backdrop of an improvement in US economic activity and the election of Donald Trump. Over the rest of this month, the economic and geopolitical uncertainties linked to Trump's programme will continue to support the US dollar, but in December it is likely the currency will go back on the retreat gradually, particularly if US job creations and inflation continue to slow. In this respect, Jerome Powell has suggested that Trump's election will have no immediate effect on the Fed’s policy. In 2025, it is therefore likely the US dollar will continue to weaken as the Fed goes about easing its monetary policy. At the same time, however, the US dollar's performance will continue to depend on the new economic measures taken by Donald Trump's team, expectations being that there will be inflationary measures that are likely to limit downside potential for the Fed Funds rate to 3.25% according to our US economists (compared with 3.0% previously). As this is still below market expectations, it is likely to penalise the US dollar in 2025.In the face of the US dollar’s rebound, the euro corrected to a low of 1.0693 the day after Donald Trump's victory. In October, the single currency had already been adversely affected by factors specific to the Eurozone, including weaker-than-expected inflation and PMI surveys, which prompted the ECB to cut its key rates in October. This month, the EUR/USD could potentially test 1.06 before returning to 1.085 at the year-end, with a resumption of the US dollar’s downward bias. In 2025, the EUR/USD can be expected to extend its recovery towards 1.13, mainly on the back of a gradual depreciation of the US dollar.Of the G10 currencies, it is the Japanese yen that has recorded the sharpest fall since the beginning of October, with the USD/JPY climbing to almost 155 following Donald Trump’s election, as this boosted the US currency and led to a significant rise in US long rates, widening the spread between US and Japanese rates, which is unfavourable for the Japanese yen. The absence of a reaction on the part of the BoJ also contributed to the yen’s bout of weakness. In November, the USD/JPY could potentially test 157, but the pair should then correct and pull back to around 150 at the end of December, bearing in mind that the BoJ may have to raise its key rates. As regards 2025, we remain bearish on the USD/JPY but expect a more gradual weakening towards 142.Sterling was the G10 currency that put up the strongest resistance in the face of an invigorated US dollar, the cable declining by just 2.2%. This was due to several factors, including the sticky services inflation and, above all, an expansionary 2025 budget which, according to the BoE, is likely to keep inflation higher for longer. In this respect, the BoE has shown itself to be more cautious and does not envisage cutting its key rates very quickly. In the short term, the EUR/GBP is therefore likely to remain around 0.83-0.835.