After experiencing a strong 2024 with the US exceptionalism narrative helping to strengthen the US dollar (USD) against every other G10 currency, the USD could see a peak in 2025 but in the later part of the year, says Bank of Singapore’s (BoS) currency strategist, Sim Moh Siong.
“The buzz this time last year was that 2024 could see USD trending sideways or weaken. But things could not be more different,” the analyst writes in his Jan 6 report.
Now that the US Federal Reserve is guiding for only two rate cuts in 2025, down from the four it guided in September 2024, the US central bank’s more hawkish stance is currently better reflected in the USD, he adds.
However, he also sees that tariff risks could keep the USD supported in the early stages of US President-elect Donald Trump’s second term in office.
The Euro vs the USD
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“A test of parity in [the] Euro/USD remains on the cards in our view even as the market closely monitors if Germany’s February election will result in an easing of the fiscal debt brake to support the struggling economy,” says Sim. “We could see a peak in the USD, but probably later in the year.”
Should doubts arise over the endurance of US economic exceptionalism as well as concerns over a more dovish successor to current Fed chair Jerome Powell, the USD’s lofty valuation might become problematic then, he notes. Powell’s term as chairperson will expire in May 2026.
The Chinese yuan against the USD
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The People’s Bank of China (PBoC) is also likely to continue to restrain the weakness of the Chinese yuan (CNY) before allowing bigger adjustments once Trump imposes tariffs on Chinese goods following his inauguration on Jan 20.
At present, the PBoC has kept the daily USD/CNY fixing stable, although that has not prevented the onshore USD/CNY spot rate from breaking above 7.30, a level held since the Federal Open Market Committee in December 2024.
The way Sim sees it, a further weakening in the CNY would weigh on other Asian currencies as well.
Gold prices
Despite expectations of a strong USD in 2025, Sim believes there is still room for gold prices to grow.
“The gold price appreciation over the past year has gone well beyond the moves implied by the USD and real bond yield shifts,” he says.
“Trump's proposed tax cuts and the consequent loss of revenue will undermine long-term fiscal sustainability. Concerns over US fiscal sustainability and geopolitical tensions could drive more central banks to buy gold,” he adds.
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The analyst has kept his 12-month gold price target unchanged at US$2,900 ($3,955.43)/oz.
Charts: Bank of Singapore
