As 2024 draws to a close, financial markets are experiencing the reverberations of significant geopolitical events and monetary policy shifts. The re-election of Donald Trump and his revived trade policy agenda have reignited volatility across currency markets, propelling the USD to two-year highs. Is your payments strategy sufficient to help ensure your business stays ahead in this environment?
Download our Global FX Outlook for December and discover the major drivers behind last month’s FX movements, the global monetary policy landscape, and the key themes shaping the currency outlook for the month ahead.
Trump 2.0: A catalyst for market volatility
November marked the onset of what analysts are calling the “Trump 2.0 era,” characterized by the revival of protectionist trade policies. Early in the month, Trump’s re-election spurred a wave of market activity, further intensified by his threats to impose steep tariffs on imports from Canada, Mexico, and China. These announcements unsettled markets, causing significant depreciation in the Canadian dollar, Mexican peso, and Chinese yuan. The mere threat of a 25% tariff on all imports from Canada and Mexico, alongside a 10% tariff on Chinese goods, has reawakened fears of a global trade war.
While these tariffs may take time to materialize, their impact on the FX market has been immediate and profound. The USD emerged as a safe haven amidst this turmoil, bolstered further by rising US bond yields. The USD index climbed 7.4% over October and November, marking its strongest quarterly performance since 2015. This surge reflects the market’s flight to safety in response to heightened uncertainty.
The Trump 2.0 era is a stark reminder of how quickly geopolitical developments can reshape the financial landscape. Staying informed and proactive allows businesses and investors to navigate these turbulent waters with greater confidence and resilience.
Central Banks and desynchronized cutting cycles
November also underscored the diverging monetary policy approaches of global central banks. The “loosening era” continued with significant rate cuts from New Zealand, the UK, South Korea, Sweden, Brazil, and Mexico. These actions reflected a shared commitment to supporting growth amidst an uncertain geopolitical backdrop.
September marked a turning point for global inflation trends, with major economies like the UK experiencing a sharp rebound. This inflationary uptick has tempered expectations for further rate cuts, particularly in the US, where Federal Reserve expectations have fluctuated dramatically throughout the year. For December, the Federal Reserve faces a 50/50 chance of a 25-basis-point rate cut, while the Bank of England and Reserve Bank of Australia are expected to hold steady.
The European Central Bank (ECB), on the other hand, is widely anticipated to cut rates, though the size of the reduction remains uncertain. These contrasting policies underscore the importance of interest rate differentials as a key driver of FX trends. For instance, the euro faced one of its toughest months in November, hitting two-year lows due to trade tensions, weak economic data, and a dovish ECB outlook.
These desynchronized cutting cycles highlight the complexity of the current monetary policy landscape. While some central banks are focused on stimulating growth through expansionary monetary policy, others are constrained by rising inflation. This divergence creates a nuanced environment for the FX market, where currency movements are closely tied to central bank actions and expectations.
Understanding these dynamics is crucial for businesses and investors. Those with exposure to multiple currencies need to stay attuned to central bank announcements and be ready to adjust their strategies accordingly. Monitoring interest rate differentials and inflation trends helps in better anticipating exchange rate movements and making informed decisions.
Download the December Global FX Outlook for more insights.
Currency highlights:
EUR
The euro faced one of its toughest months in November, with the EUR/USD pair hitting two-year lows. Concerns over trade tensions, weak economic data, and a dovish European Central Bank (ECB) outlook contributed to the euro’s 7% decline since September. Political instability in France and Germany, coupled with the ongoing war in Ukraine, further weighed on the currency.
GBP
The Sterling saw substantial volatility, with GBP/USD experiencing its largest monthly price range in a year. The British pound hit six-month lows following a Bank of England rate cut but later rebounded slightly. However, ongoing trade concerns and slowing UK growth kept the pound under pressure.
AUD
The AUD/USD pair remained relatively stable compared to its peers, reflecting the Reserve Bank of Australia’s cautious approach to rate cuts. Despite this resilience, the Aussie remains confined within its 2024 trading range of 0.6400–0.6900, constrained by global trade tensions
Watch an overview of the December Outlook
Watch our Market Insights team provide a short summary of the most crucial insights from the December Global FX Outlook and start making informed decisions for your business today.
The final month of 2024 is poised to bring continued volatility to FX markets as geopolitical tensions, inflation concerns, and monetary policy decisions dominate headlines. While the USD remains the standout performer, trade-sensitive currencies like the AUD, GBP, and CAD may see seasonal support from equity market gains.
For SMEs and corporates engaged in cross-border trade, these market dynamics present both opportunities and risks. By staying informed and adapting payment strategies to market conditions, businesses can better navigate the challenges of an evolving global landscape.
We hope this analysis empowers you to make more informed decisions about international payments and risk management. As always, our team is here to support you with tailored solutions to meet your needs.
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