47 is the New 45

January 20, 2025

6 min read

Elias Haddad

47 is the New 45

Donald Trump will be sworn in as 47th president of the US today and plans to sign more than 200 executive actions on day one. Whether he will take immediate action on tariffs remain uncertain.

US economic exceptionalism remains a key theme underpinning USD strength.

Bank of Japan and Norges Bank hold policy-setting meetings this week. All the details in our Drivers for the Week Ahead report.

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US financial markets are closed today in observance of the Martin Luther King Jr. Day holiday. Friday’s upbeat phone conversion between Donald Trump and Chinese President Xi Jinping boosted investor sentiment. USD is a bit lower across the board, USD/CNH is down about 0.50% from Friday’s high, while stocks in Asia tracked US and European equity markets higher.

Nevertheless, US economic outperformance continues to favor USD strength. The IMF bumped up US 2025 real GDP growth projection by 0.5pts to 2.7%, a rate that also outpace that of its international peers. For 2025, real GDP growth forecasts for the Eurozone was revised -0.2pts lower to 1.0%, the UK was raised 0.1pts to 1.6%, Japan was unchanged at 1.1%, while an aggregate of other advanced economies was tweaked lower by -0.1pts to 2.1%. The January PMI figures for major economies, due Thursday/Friday, will offer a timely update on relative growth momentum trends.

GBP/USD recovered above 1.2200 on broad USD weakness. UK Rightmove national asking price increased 1.7% m/m in January, reversing December’s decline of -1.7%. However, the recent pick-up in mortgage rates will likely cool housing demand activity and is a headwind to house prices.

Encouragingly, the Bank of England (BOE) has room to step-up the pace of easing as services inflation eased more than anticipated in December. Market has virtually fully priced-in a 25bps rate cut in February and almost 75bps of total cuts over the next 12 months (up from 50bps earlier this month). Bottom line: BOE/Fed policy trend remains a drag on GBP/USD.

EUR/USD is firm around 1.0300. ECB Executive Board Member Isabel Schnabel argued for a more cautious easing cycle. During a Sunday interview Schnabel noted that “after the steep rate cuts over the last few months, we are getting closer and closer to the point where we have to take a closer look at whether and to what extent we can still reduce rates.” ECB Governing Council members Boris Vujcic and Robert Holzmann speak today.

Regardless, the Eurozone’s soggy growth outlook suggests the ECB can bring down the policy rate towards the lower-end of its neutral range - estimated at around 1.50% to 3.00%. This is an ongoing drag for EUR. Markets price-in 100bps of total ECB easing over next 12 months that would see the policy rate bottom around 2.00%.

USD/CAD is slightly lower after hitting a fresh multi-year high around 1.4486 Friday. The Bank of Canada’s (BOC) Q4 business outlook survey is the domestic highlight (3:30pm London). Business conditions remained subdued in Q3 consistent with a sluggish economic activity. However, demand indicators have improved slightly supported by BOC policy easing.

The BOC is expected to ease further, though at a more gradual pace because inflation is stabilizing around 2%. Indeed, BOC Governor Tiff Macklem effectively ruled-out additional jumbo cuts, pointing out that officials will consider further rate cuts but likely at a slower pace. Market implies about 80% odds of a 25bps BOC rate cut at the January 29 policy-setting meeting. Bottom line: Fed/BOC policy trend continues to support the uptrend in USD/CAD.

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