Credit Agricole analysis suggests that the year 2025 will not mirror the USD’s rally in 2018, which was largely influenced by policies during the Trump administration. The differences in economic conditions, monetary policies, and the current strength of the USD indicate that the factors driving the dollar’s movement will be distinctly different from those in 2018.
In 2018, the US experienced robust economic growth and increasing inflation, leading the Federal Reserve to raise rates by 125 basis points. However, in contrast, 2025 is anticipated to see a slowdown in US growth and inflation, which could prompt further rate cuts by the Fed, potentially dampening the strength of the USD.
The combination of trade tariffs and fiscal stimulus in 2018 contributed to growth, inflation, and higher US yields. Yet, in 2025, a similar mix of factors could result in stagflationary pressures, complicating the Fed’s anticipated easing cycle without completely halting it.
Moreover, the USD is currently much stronger than it was in 2018, which may limit the possibility of further appreciation. A significant decline in the EUR/USD exchange rate towards parity could also restrict the European Central Bank’s ability to ease monetary policy further, thereby reducing the potential for USD gains driven by divergence.
In conclusion, Credit Agricole recognizes that President Trump’s policies have elevated the upside risks for the USD. Nevertheless, a repetition of the broad-based surge seen in 2018 is improbable. With slower US growth, potential stagflation risks, and the already strong position of the USD, the outlook for 2025 is expected to be more nuanced.
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