Can Anything Stop US Exceptionalism?

Economic

Summary:

December macro and asset class views.

2024 has been yet another year of US exceptionalism – US economic growth repeatedly surprised to the upside and beat out other advanced economies, US stocks have soundly outperformed ex-US equities, and the US dollar is up. But this price action just continued a trend that has extended for nearly 15 years.

Since the stock market bottomed post-GFC in March 2009, MSCI USA has outperformed MSCI ex USA by 4.5% annually in USD terms. This US outperformance reflects several favorable drivers including faster nominal GDP and earnings growth, larger margin expansion and a rise in valuations. A comparatively favorable business environment, fiscal stimulus and critically, dominance in megacap tech underpin these trends.

With this historical track record, it is hard to bet against the US. And incoming President Trump’s ‘America First’ policies should support US equities via tax cuts and deregulation, while disproportionately undermining ex-US companies vulnerable to tariff uncertainty.

The US economy continues to hum along, with positive real wage growth and solid productivity, while Europe and China suffer from weak consumer confidence and a stall in global manufacturing. Moreover, there is little to suggest the artificial intelligence (AI) theme is set to stumble, which disproportionately accrues to US tech companies and should improve productivity for US companies across a variety of industries. We have been overweight US equities through the bulk of 2024 and plan to carry this position into 2025.

There is only one problem: valuations. The S&P 500 12M forward P/E is above the 90th percentile going into 2025, and the US’ valuation challenge is no longer just about megacap tech – US stocks excluding the ‘Magnificent Seven’ have also reached the 90th percentile. Valuation is a not a timing tool and has low explanatory power for performance under a year. But over longer time frames it matters and mean reversion, in response to a worthy set of catalysts, can begin at any time.

Given extreme relative valuations and a strong consensus for US outperformance next year, it is worth exploring ways in which markets could surprise so that we are ready to adjust when the facts change.

What could disrupt US exceptionalism?

(i) Narrowing growth differentials

US growth has repeatedly surprised to the upside thanks to fiscal policy and resilient household spending. But fiscal support will fade next year (potential incremental tax cuts won’t take effect until 2026), and slower immigration may weigh on aggregate incomes and spending. In contrast to the US, European growth has already been weak; allowing for more aggressive European Central Bank cuts, which should help housing and give European consumers the needed confidence to start spending their savings. From a market expectations standpoint, US growth has gone through a sequence of upgrades this year and has a higher bar to keep beating, while the rest of the world faces a low bar for improvement.

A convergence in growth between the US and rest of the world would be given a boost if major economies, namely Germany and China, adopt more expansionary fiscal policy. In the case of Germany, the snap Federal election on February 23rd has the capacity to bring about fresh thinking on fiscal policy. For China, we think fiscal expansion has capacity to increase. It is possible Chinese policy makers have left themselves room to act in the scenario of a growth dampening trade-war.

It is worth remembering that in Trump’s first year as President in 2017, emerging markets soundly beat US stocks and the USD depreciated – surprising most investors. This can be largely attributed to China’s stimulus driving global manufacturing, making the US less exceptional. Of course, the US-China trade war began the year after, reversing this theme.

Note, we still think outright growth in the US will outperform, and the risks are skewed to the downside for the rest of the world versus the US, but given starting points and expectations, there is a risk growth converges more quickly than we expect.

(ii) Trump 2.0 is not Trump 1.0

In President-elect Trump’s first term he had a clear mandate to boost nominal GDP growth. Inflation was of little concern, deficits and debt to GDP were much lower and 10-year yields were at 2%. In contrast to 2016, one of the reasons, if not the key reason, Trump was elected this year was unhappiness with inflation.

Trump’s mandate is different this time – while tariffs and tax cuts are campaign pledges that will likely be delivered, voters would presumably be unhappy with policies that drive the prices of goods up too much or make housing even less affordable via higher mortgage rates. These political realities may act as constraints on Trump’s tariff and fiscal plans. Despite the threats, he may end up delivering much less on the tariff front which should ease risk premia on non-US equities and currencies. He may also need to dial back corporate tax and stimulus plans to ensure US yields and mortgage rates do not rise too sharply.

(iii) Sector concentration

US exceptionalism has been driven in large part by dominance in the technology sector. The Magnificent Seven now represent nearly one-third of US market cap, a striking degree of concentration. The current level of valuations reflects high earnings and sales expectations, which increase the bar for surprises. In recent quarters, the magnitude of tech sector earnings surprises has started to decline from very elevated levels. Valuations could be challenged if this trend extends.

Over the last two years, large tech companies have dramatically stepped up capital expenditure to develop AI infrastructure. But there is a lot of uncertainty on when and by how much these companies will be able to monetize on this capex in earnest. Investors may start losing patience if there is delayed adoption of AI capabilities.

Moreover, current AI champions benefit from low competition which underpins elevated profit margins. But this environment is unlikely to last forever, especially if the government presses forward with antitrust actions. While we think the US government is focused on the US winning the AI race and won’t do too much to undermine its tech champions, the sheer concentration of these companies makes any risk to their outlook worth monitoring.

Asset allocation

In our view, the anticipation of Trump’s pro-growth policies can continue to support US equities into 2025. Moreover, tariff uncertainty is likely to limit the ability for ex-US equities to outperform. We remain overweight US large cap market weight, equal weight and small cap indexes versus Europe. We are also long the USD versus EUR and CNH.

That said, we are conscious that US exceptionalism can get too stretched, leaving markets vulnerable to even minor changes in the narrative. As discussed above, we are monitoring relative growth differentials, Trump’s actual fiscal and tariff policies, and any questioning of the AI narrative.

On growth specifically, there is potential for US economic data to moderate organically into 2025. Many Fed rate cuts having been priced out, and we have begun adding duration in portfolios as the risk-reward has improved. Gold also is an effective portfolio diversifier to fiscal largesse, geopolitical risk or issues with Fed credibility.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

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Glendon

Economic

Fundamental analysis is a cornerstone of forex trading, offering traders the tools to evaluate the intrinsic value of currencies by analyzing economic, social, and political factors. Unlike technical analysis, which focuses on historical price patterns, fundamental analysis delves into the "why" behind market movements. This comprehensive guide explores the key elements of fundamental analysis, its application in forex trading, and how traders can use it to gain an edge.

What is Fundamental Analysis?

Fundamental analysis involves studying macroeconomic indicators, monetary policies, and geopolitical events to forecast currency value changes. Its objective is to identify whether a currency is undervalued or overvalued based on its economic health and other influencing factors.

Key Components of Fundamental Analysis in Forex

Economic Indicators

Economic indicators are statistical metrics that reflect a country's economic performance. Commonly tracked indicators include:

Gross Domestic Product (GDP):

Measures a nation's economic output and growth. A rising GDP typically strengthens a currency.

Inflation Rates:

High inflation can erode a currency's value, while moderate inflation is often a sign of healthy economic growth.

Employment Data:

Metrics like Non-Farm Payroll (NFP) reports and unemployment rates provide insights into labor market health.

Interest Rates

Central banks play a pivotal role in setting interest rates, which influence currency strength. Higher interest rates attract foreign investors seeking better returns, boosting demand for the currency. Conversely, lower rates can weaken a currency as investment attractiveness diminishes.

Central Bank Policies

Monetary policies, including quantitative easing or tightening, directly impact a currency’s supply and demand. For instance, a hawkish policy (raising rates) can strengthen the currency, while a dovish stance (lowering rates) can weaken it.

Trade and Current Account Balances

A country with a trade surplus (exports exceeding imports) generally sees its currency strengthen due to higher foreign demand. Conversely, a trade deficit can weaken the currency.

Geopolitical Events

Political stability, elections, and global conflicts can create significant volatility in forex markets. For instance, uncertainty surrounding a nation’s leadership can lead to a weakening currency as investors seek safer assets.

How to Apply Fundamental Analysis in Forex Trading

Stay Updated with News and Reports

Monitor economic calendars for upcoming reports like GDP, inflation, and employment data. Major releases often lead to market volatility, presenting trading opportunities.

Compare Economies

Forex trading involves currency pairs, making it essential to compare the economic health of two countries. For instance, analyzing the U.S. dollar (USD) against the euro (EUR) involves evaluating both economies’ performance.

Incorporate Long-Term Trends

Fundamental analysis is particularly effective for long-term trading. While technical analysis identifies entry and exit points, fundamental insights help validate those decisions with a broader economic perspective.

Advantages and Limitations of Fundamental Analysis

Advantages:

Provides a deeper understanding of market forces. Helps forecast long-term currency trends. Useful for assessing global economic relationships.

Limitations:

Requires extensive research and analysis. Not as effective for short-term trades due to market noise. Interpreting mixed signals from multiple indicators can be challenging.

Conclusion

Fundamental analysis in forex trading is a powerful tool for understanding the macroeconomic and geopolitical factors driving currency values. While it requires a significant investment of time and effort, its insights can guide traders toward more informed decisions. By integrating fundamental analysis with technical strategies, forex traders can achieve a balanced and robust approach to navigating the dynamic currency markets.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Glendon

Economic

The Non-Farm Payroll (NFP) report is one of the most anticipated economic indicators in the financial world. Released monthly by the US Bureau of Labor Statistics, it measures the number of jobs added or lost in the US economy, excluding farm workers and a few other sectors. This data significantly impacts various markets, including currencies, stocks, and commodities. Among commodities, gold is particularly sensitive to NFP releases due to its inverse relationship with the US dollar and its status as a safe-haven asset.

This article delves into how NFP data influences the price of gold, the underlying mechanisms, and what traders need to know to navigate this high-volatility event.

The Relationship Between NFP and Gold Prices

NFP, the US Dollar, and Gold

Gold prices are closely tied to the performance of the US dollar. Since gold is priced in dollars, any movement in the currency's value directly affects the metal’s price.

Strong NFP Data:

Indicates a robust labor market, often leading to a stronger US dollar. A stronger dollar makes gold more expensive for foreign buyers, typically driving its price lower.

Weak NFP Data:

Suggests a struggling economy, potentially weakening the US dollar. In such scenarios, gold often gains as it becomes cheaper for global buyers and serves as a hedge against economic uncertainty.

Impact on Interest Rates

The Federal Reserve closely monitors employment data, including the NFP report, to guide monetary policy decisions.

Positive NFP Results:

May prompt the Fed to consider raising interest rates, as strong employment often signals economic growth. Higher rates reduce gold's appeal since it does not yield interest.

Negative NFP Results:

Can lead to lower interest rate expectations or even rate cuts, making gold more attractive as a non-yielding asset.

Market Sentiment and Volatility

NFP releases often cause sharp movements in gold prices due to heightened market speculation and trading activity. Traders react to both the headline numbers and other details in the report, such as wage growth and labor force participation.

Historical Examples of NFP Impact on Gold

June 2021 NFP Report

The report showed stronger-than-expected job growth, strengthening the US dollar. Gold prices fell sharply, reflecting diminished demand as a hedge.

April 2020 NFP Report

Amid the COVID-19 pandemic, the US economy lost over 20 million jobs. This disastrous report weakened the dollar and boosted gold prices significantly as investors flocked to safety.

Trading Strategies for Gold During NFP

Pre-Report Preparation

Monitor economic forecasts for the NFP report. Analysts’ expectations often influence gold prices even before the data is released.

Post-Report Reaction

After the release, traders should look at both the headline job number and accompanying details, such as wage growth. A holistic view helps in understanding the broader economic implications.

Hedging Strategies

Volatility during NFP releases can be unpredictable. Many traders use options or stop-loss orders to manage risks effectively.

Tips for Investors

Understand the Broader Context

NFP data is one piece of the economic puzzle. Consider how it aligns with other indicators like inflation and GDP growth.

Follow Central Bank Policies

Pay attention to Federal Reserve commentary following NFP releases, as their stance on interest rates can amplify gold price movements.

Stay Updated with Real-Time Data

Gold prices can react within seconds of the NFP report. Use a reliable trading platform with real-time updates to capitalize on opportunities.

Conclusion

The NFP report profoundly impacts gold prices due to its influence on the US dollar, interest rate expectations, and overall market sentiment. For traders and investors, understanding the nuances of this relationship is crucial for making informed decisions. By combining fundamental analysis with risk management strategies, market participants can navigate the volatility surrounding NFP releases and take advantage of gold’s dynamic price movements.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Glendon

Economic

Forex trading offers traders various types of orders to execute their strategies effectively. Among them, buy limit and sell stop orders are crucial for managing entry points in the market. However, their functions and applications often confuse beginners. This article explores the differences between buy limit and sell stop orders, how they work, and when to use them to enhance your trading results.

What is a Buy Limit Order?

A buy limit order is an instruction to purchase a currency pair at or below a specified price. This type of order is typically used when a trader expects the price to drop to a certain level before rebounding upward.

Example: Assume EUR/USD is trading at 1.2000, but you believe the price will fall to 1.1950 before starting an upward trend. You place a buy limit order at 1.1950. If the price reaches this level, your order will be executed automatically.

Key Features:

Enables buying at a lower price than the current market rate.Ideal for entering trades during pullbacks in an uptrend.

What is a Sell Stop Order?

A sell stop order is an instruction to sell a currency pair once the price reaches a specified level below the current market price. Traders use this order when they anticipate further downward movement after the price breaks a certain support level.

Example:If GBP/USD is trading at 1.3000, and you expect a significant drop if the price falls to 1.2950, you place a sell stop order at 1.2950. Once the price hits this level, your order is triggered, and the position is sold.

Key Features:

Allows selling at a lower price than the current market rate.Useful for capitalizing on momentum during a downtrend.

When to Use a Buy Limit Order

Trading Pullbacks:If a currency pair is trending upwards, a buy limit order helps you enter at a favorable price during a temporary dip.

Support Levels:Place buy limit orders near identified support zones to capitalize on expected price bounces.

When to Use a Sell Stop Order

Breakout Strategies: Use sell stop orders when you expect a currency pair to drop significantly after breaking a key support level.

Trend Continuation: If the market is in a downtrend, sell stop orders allow you to join the trend after confirming further downward movement.

Advantages of Using Buy Limit and Sell Stop Orders

Automation: Both order types allow traders to automate their entries, removing the need for constant market monitoring.

Risk Management: These orders help in managing risk by enabling precise entry points, avoiding emotional trading decisions.

Strategic Execution: Both orders cater to specific trading strategies, ensuring disciplined market participation.

Tips for Using These Orders Effectively

Combine with Technical Analysis: Use support and resistance levels, trendlines, and candlestick patterns to determine optimal order placements.

Set Realistic Levels: Avoid setting buy limit or sell stop orders too far from the current price, as the market may never reach these levels.

Monitor Economic Events: Fundamental factors can cause sudden price shifts, so align your orders with market conditions.

Conclusion

Understanding the difference between buy limit and sell stop orders is crucial for effective forex trading. While a buy limit order allows traders to capitalize on price pullbacks, a sell stop order is ideal for momentum trading in a downtrend. By integrating these orders with a robust trading strategy and disciplined risk management, traders can maximize their market opportunities.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Owen Li

Economic

London is ‘one of the hopefuls’ under consideration for a European funding and trading hub of the Beijing-headquartered Asian Infrastructure Investment Bank, according to Jin Liqun, the bank’s president. In remarks to be broadcast at OMFIF’s third China-UK investor forum in London on 4 December, Jin provides a ringing endorsement of London’s prowess as an international financial centre. Despite the strains of leaving the European Union, he says, ‘The financial services sector represents the UK’s enduring competitiveness.’

‘Brexit certainly poses a challenge to the UK in handling its relationship with continental Europe.’ But Jin sees ‘no indication’ of large-scale moves of financial institutions from London or that ‘its relevance to development banks such as ours will be eroded’. Although more major cities are developing financial services capability, ‘we do not see any sign of the possible waning of the UK’s competitive advantage as a country of robust financial services’.

Strengthening UK-China relationship

Jin, a former supervisory board chairman of China Investment Corporation, the country’s sovereign fund, has presided over the AIIB since its inception in 2016. A strong internationalist with a fondness for doing business with the Anglo-Saxon world, Jin is about to start the final year of a second five-year mandate, which has seen the bank grow to 110 shareholders, led by China. He is due to step down in January 2026.

Setting up a European office for the bank has been under discussion for several years, with Frankfurt and Paris also in the running. As part of the warming of UK-Chinese ties under the Labour government that took office in July, Jin held talks two months ago with Rachel Reeves, UK chancellor of the exchequer, about setting up a London office. No decision has been taken. ‘The final outcome depends on the negotiation with the competing candidates’ cities,’ Jin says.

The AIIB and another China-based international development bank, the New Development Bank, have often been regarded as challengers to the US-led Bretton Woods system and its institutions. The International Monetary Fund and World Bank were set up as a result of an international conference held in 1944 in New Hampshire. Chinese scholars like to recall that China – under the Nationalist government – sent the third largest set of delegates (after the US and UK) to the conference.

Emerging markets are coming to the fore

In his remarks to the OMFIF meeting, Jin pays tribute to the Bretton Woods institutions as upholding the long-term spirit of multilateralism. ‘Institutionalised co-operation on a global scale to promote peace and prosperity’ still holds sway in spite of the ‘great changes since the end of the second world war’.

‘The negotiation of the Bretton Woods system was mainly the drama played out by the UK and US.’ Other countries were ‘back-benchers and had little role to play’. But now, Jin says, China and other developing countries are coming to the fore. ‘The emerging market economies are already carrying more weight in a global economy, and back-benchers are moving to the front seats, to the front-benches. This does not feel comfortable, but people will have to face the reality, and both sides need to take a constructive stance in managing the process.’

Jin extols the role of the UK and other developed countries in helping establishment and growth of the AIIB. ‘The UK’s role was spectacular. After the UK declared its commitment to participating in a negotiation of the articles of agreement, all the other European countries followed suit. At that time, I said that, once again, the Chinese saw the great power of Great Britain. The power of a country is not just its economic might. Rather, it’s the soft power. It’s the leading role in promoting an initiative which is expected to serve the broad interest of the members of the international community.’

Turning to general UK-Chinese ties, Jin acknowledged sources of ‘complication, conflict and confusion’ in the bilateral relationship. ‘This is not something that can be overlooked. The difficult part is there for everyone to see, but it makes sense to look at the upside, not just the downside. When attention is focused on areas of co-operation, it is not hard to identify vast scope.’

Source:David Marsh

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HSBC

Economic

Forex

The RBNZ delivered a 50bp cut in November, as widely expected

On 27 November, the Reserve Bank of New Zealand (RBNZ) cut its policy rate by 50bp to 4.25%, in line with market expectations. This was the third straight cut, taking its easing so far to 125bp since August. The RBNZ embraces the idea of a 2025 recovery in economic activity, while seeing inflation to be 2.4% (up 0.1%) in Q4 2025 and 2.1% (up 0.1%) in Q4 2026, but still within the RBNZ’s inflation target range of 1% to 3% (Chart 1).

More RBNZ rate cuts could come in 2025

It is worth noting that RBNZ Governor Adrian Orr gave strong guidance towards a 50bp cut in February 2025, if the economy evolves as expected. The RBNZ also lowered its year-end 2025 policy rate forecast to 3.55% (from its August projection of 3.85%), albeit above market expectations of c3.30%. Our economists see the RBNZ delivering further cuts through 2025, taking the policy rate to 3.25% by end-2025. The NZD jumped c1% against the USD and c0.7% against the AUD after the announcement (Bloomberg, 28 November 2024).

The RBA is likely to keep its policy rate unchanged in December, with the first cut to come in Q2 2025

Beyond the kneejerk reaction, AUD-NZD is likely to face downward pressure amid the relative terms of trade dynamics. From a rate differential’s perspective, monetary policy divergence remains clear between the two central banks, but we see limited room for the divergence in market pricing to extend (Chart 2). Both markets and our economists expect the Reserve Bank of Australia (RBA) to keep its policy rate unchanged at 4.35% at its 10 December meeting. Markets and our economists’ central case is for the RBA to start its rate cut cycle in Q2 2025, but our economists also see a 25% chance that the RBA does not cut at all in 2025.

Both AUD and NZD are likely to face external headwinds in 2025

In 2025, we think that both the AUD and the NZD are likely to weaken against the USD amid external headwinds, such as the rising US terminal rate, potential tariff concerns, and portfolio outflows. More forceful fiscal policy support from China could help, but it may have limited spillover effect through the commodity demand channel. Structurally, China’s importance on the AUD may be declining.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Economic

Forex

Central Bank

‘Trump trade’ reinforces dollar bulls

The Federal Reserve finally cut interest rates in September, but far from falling, the US dollar embarked on a fresh rally as policymakers dashed hopes of aggressive policy easing. As we head into 2025, there can be no denying about the dollar’s superiority. The greenback is not only being supported by a resilient US economy and persistent price pressures, but also by expectations that the incoming Trump administration will enact polices that will further boost growth and inflation.

Donald Trump’s historic victory in the 2024 presidential election is shaping up to be the defining narrative for financial markets in 2025. But as the dollar and assets such as US equities and cryptocurrencies cheer the prospect of a Republican-controlled Congress, Trump’s return to the White house isn’t being celebrated by everyone.

Leaving aside the risk to countries that will probably be at the receiving end of Trump’s trade tirade, his election pledges, which are deemed to be inflationary, could cause a major headache for the Fed. Expectations that big tax cuts and tariff hikes will fuel inflation have already pushed Treasury yields to multi-month highs, powering the dollar’s rally.

How inflationary will Trump’s policies be?

The question for the 2025 outlook is how quickly the Republicans will be able to push through their tax agenda and how readily will Trump resort to imposing higher tariffs as he begins trade negotiations with America’s major trading partners like the European Union, Mexico and China?

But it’s not just about the timing. With a budget deficit running at more than 6% of GDP and a ballooning national debt, the Republicans could slash spending to pay for their tax giveaways, offsetting some of the boost to the economy from lower taxes.

When it comes to tariffs, it’s yet unclear how far the new Trump administration will go in slapping higher levies on imports, particularly on Chinese goods, which could be in excess of 60%. Trump has a tendency of using scaremongering as a negotiating tactic.

Hence, for the dollar, it’s all about how much has already been priced in and how much that’s yet to be factored in by investors. Any signs that Trump’s election promises will be watered down are likely to be negative for the US dollar during 2025. Similarly, should there be any delays by the newly elected lawmakers in preparing and agreeing to Trump’s legislative agenda, a dollar pullback is a strong possibility.

However, if the Republicans move swiftly with tax cuts and Trump shows his unwillingness to compromise on trade, the dollar will be well positioned to climb towards its 2022 highs when the Fed was hiking rates aggressively.

The Fed’s inflation dilemma

Although the Fed’s tightening days are over and borrowing costs are now falling, the inflation battle is not won and policymakers are wary about lowering rates too quickly. The Fed’s unexpectedly hawkish stance is underscoring the greenback’s bullish outlook. The main concern is that inflation appears to be settling closer to 2.5% instead of the Fed’s 2.0% target.

If this is the case even before Trump has taken office, there’s a real risk that the Fed will not be able to deliver many rate cuts in 2025, while a rate hike cannot be completely ruled out.

Geopolitical risks

Away from domestic politics and Fed policy, the risks to inflation are somewhat tilted to the upside. Assuming there is no nuclear fallout in the meantime, a Trump presidency will probably push for a ceasefire agreement between Ukraine and Russia. However, Trump is likely to take a more hard-line stance against Iran. This risks triggering a wider conflict in the Middle East, especially if it involves tougher sanctions on Iranian oil, or allowing Israel to strike Iran’s oil facilities.

A fresh oil price shock is hardly what the Fed needs when it’s still struggling to tame inflation. As the world’s reserve currency, the dollar also stands to gain directly from risk-off episodes.

Summing up, although there’s not a lot on the horizon that can trigger a massive dollar selloff, its ability to continue marching higher hinges on the actual size of Trump’s tax cuts and tariff increases that will eventually be approved.

Yen’s rollercoaster ride

So where does all this leave the yen? The Japanese currency staged a dramatic recovery over the summer from levels last seen in 1986. The bullish reversal was driven by a combination of policy pivots by the Bank of Japan and the Fed, as well as direct intervention in the currency markets by Japanese officials.

However, the Bank of Japan’s hawkish surprises soon turned to caution and uncertainty about the pace of subsequent rate hikes has been weighing on the yen. But that’s not to say that the yen can’t restore its bullish posture in 2025.

BoJ has one eye on wages

Although inflation in Japan has fallen to around 2.0%, policymakers see upside risks to the outlook from wage pressures as well as higher import costs from the weaker yen and increases in commodity prices. The BoJ is hopeful that next year’s spring wage negotiations will lead to another round of strong pay deals.

The country’s biggest trade union is aiming for wage increases of at least 5.0%. Such an outcome could pave the way for the BoJ to hike rates to 1.0% by the end of 2025.

Yield differentials matter

However, even if borrowing costs do rise to 1.0% or higher, yield differentials with the US might not necessarily narrow much if the Fed finds itself with very limited scope to trim its rates. Hence, whilst the BoJ may catch some investors off guard with its determination to normalize monetary policy, any yen rebound will depend as much on Fed policy as on domestic policy.

Still, with uncertainty hanging over the global economic outlook due to the elevated geopolitical tensions and Trump back at the White House, safe haven flows could also be the yen’s saviour in 2025.

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Can Anything Stop US Exceptionalism?

What could disrupt US exceptionalism?

Asset allocation

Fundamental Analysis in Forex Trading: A Comprehensive Guide

What is Fundamental Analysis?

Key Components of Fundamental Analysis in Forex

Economic Indicators

Gross Domestic Product (GDP):

Inflation Rates:

Employment Data:

Interest Rates

Central Bank Policies

Trade and Current Account Balances

Geopolitical Events

How to Apply Fundamental Analysis in Forex Trading

Stay Updated with News and Reports

Compare Economies

Incorporate Long-Term Trends

Advantages and Limitations of Fundamental Analysis

Advantages:

Limitations:

Conclusion

How Does NFP Affect the Price of Gold

The Relationship Between NFP and Gold Prices

NFP, the US Dollar, and Gold

Strong NFP Data:

Weak NFP Data:

Impact on Interest Rates

Positive NFP Results:

Negative NFP Results:

Market Sentiment and Volatility

Historical Examples of NFP Impact on Gold

June 2021 NFP Report

April 2020 NFP Report

Trading Strategies for Gold During NFP

Pre-Report Preparation

Post-Report Reaction

Hedging Strategies

Tips for Investors

Understand the Broader Context

Follow Central Bank Policies

Stay Updated with Real-Time Data

Conclusion

Buy Limit vs Sell Stop Orders in Forex: Key Differences Explained

What is a Buy Limit Order?

Key Features:

What is a Sell Stop Order?

Key Features:

When to Use a Buy Limit Order

When to Use a Sell Stop Order

Advantages of Using Buy Limit and Sell Stop Orders

Tips for Using These Orders Effectively

Conclusion

AIIB Chief says London ‘one of the hopefuls’ for European Finance Hub

Strengthening UK-China relationship

Emerging markets are coming to the fore

Source:David Marsh

FX Viewpoint: AUD and NZD: Calm Before the Storm

The RBNZ delivered a 50bp cut in November, as widely expected

More RBNZ rate cuts could come in 2025

The RBA is likely to keep its policy rate unchanged in December, with the first cut to come in Q2 2025

Both AUD and NZD are likely to face external headwinds in 2025