The new year kicked off with more dollar strength, the fifth straight week of gains, as forex markets are seemingly going all-in on Trump tariffs and protectionism. The President-elect’s policy mix is widely expected to keep the greenback dominant. with the euro especially struggling from trade barriers and more ECB policy easing. Seasonals also point to strength in USD in the first two months of the year. That said, the DXY did break a seven-year losing streak last month.

With the market now very long the dollar, does that need Trump to deliver on day one? Unless he softens his tone on protectionism or fiscal stimulus into inauguration day on 20 January, then a solid base in the world’s most traded currency should remain as we move into 2025. But other asset classes are slightly more circumspect with noises of ructions within the next administration beginning to get louder. The current play is higher stocks and lower bonds on deregulation, faster growth, tariff inflation, and more spending. But the flip side means shorting stocks and going long bonds on fiscal drag, economic turmoil from tariffs, and high valuations and concentration in megacap tech.

The FOMC has kind of removed itself from the conversation after its more hawkish than expected December meeting. There are currently less than two quarter point rate cuts (43bps) priced in for this year, with around a 75% chance of the first one in May. Of course, data will play a part alongside Trump 2.0, with Friday’s non-farm payrolls report the marquee event for this week. A general cooling of the jobs market is expected though other labour indicators, like surveys, have been mixed.

In Brief: major data releases of the week

Tuesday, 07 January 2025

– Eurozone Inflation: Consensus sees headline inflation ticking up two-tenths to 2.4% and the core steady at 2.7%. November services inflation printed at 3.9%. The December ECB staff projections were one-tenth higher than these December headline and core estimates.

– US ISM Services: Expectations are for non-manufacturing ISM to rise to 53.5 from 52.1 in November. It had surged to 56.0 in October, the highest level since August 2022. Services activity has remained in expansionary territory since July 2024.

Wednesday, 08 January 2025

– Australia CPI: The monthly inflation reading is forecast to tick two-tenths higher to 2.3% in November. This is likely to be due to rising housing and food prices. The RBA recently said it was gaining more confidence that inflation is moving sustainably to its target.

– FOMC Minutes: The Fed cut rates by 25bps as expected. But it communicated a hawkish twist with a shallower path for rates cuts going forward. Chatter around this new phase of monetary policy will be scrutinised.

Friday, 10 January 2025

– US Non-Farm Payrolls: The headline is predicted to print at 150k in December, below the prior 227k. That would mean the lowest annual total of job creation since 2019. Both the jobless rate and average hourly earnings are seen unchanged at 4.2% and 0.3%, respectively.

– Canada Jobs: Analysts forecast around 24k jobs to be added, less than the prior 50.5k and the unemployment rate to stick at 6.8%. The jobless figure surprised to the upside in November to an eight-year high, outside of the pandemic.