Aurelia Butler

Wall Street is betting the US dollar will make further gains after its recent storming rally, even hitting parity with the euro, in a challenge to President-elect Donald Trump’s stated desire for a weaker currency.The dollar has soared 6.2 per cent since the start of October, its best quarter since the early stages of the Federal Reserve’s interest rate raising campaign in 2022, as markets began to expect the Republican candidate would win November’s election and implement his plans for trade tariffs and tax cuts. More than half of all major banks surveyed by the Financial Times, including Goldman Sachs, Morgan Stanley and UBS, are forecasting the dollar will rise even further next year. Deutsche Bank expects it to reach parity against the euro in 2025, having already strengthened from $1.11 at the start of October to around $1.05.As a result, many fund managers are dismissive of Trump’s chances of being able to weaken the US currency in order to help domestic industry, whatever his rhetoric may be.The idea of a weaker currency under Trump is “a bit of a pie in the sky”, said Sonal Desai, chief investment officer at Franklin Templeton Fixed Income. “It just feels like there are a bunch of contradictory factors. “Most of the policies that he’s talking about so far, which seem definitely to be front and centre, will actually be dollar positive — not dollar negative,” she added.Trump has long held the view that a strong dollar puts undue pressure on the US economy, leading to speculation about whether the incoming administration will act to try to push it lower. “We have a big currency problem,” Trump told Bloomberg Businessweek in July, pointing to the dollar’s strength against the Japanese yen and the Chinese yuan. “That’s a tremendous burden on our companies that try and sell tractors and other things to other places outside of this country,” he added.Trump’s affinity for a weaker dollar was on full display in his first term as president, when he railed against what he deemed unfair currency practices of other countries. His administration even officially labelled China a “currency manipulator” amid a trade war between the two countries.However, his pro-growth agenda and proposed tax cuts — along with his plans for high tariffs on imports from countries including Mexico, Canada and China — are widely expected to stoke domestic inflation after he takes office next month. This could lead to the Fed keeping interest rates higher for longer, which in turn could attract more foreign capital into dollar assets.“The Trump policies are definitively dollar positive,” said Ajay Rajadhyaksha, Barclays’ chair of global research. The bank expects the dollar to strengthen slightly to $1.04 against the euro by the end of next year. That presents a conundrum for the incoming administration, say analysts and investors. The mechanics of any possible solutions — for instance reining in the government’s budget deficit or drawing up a so-called Mar-a-Lago accord in which the US pressures its trading partners into engineering a dollar devaluation — would be highly challenging and could risk tarnishing the dollar’s status as the global reserve currency, they say.The next president cares about “the importance of the primacy of the dollar [and] he gets agitated when other countries talk about currencies other than the dollar for transactions”, said Eric Winograd, chief economist at AllianceBernstein.“The clearest expression of the incoming administration is [for an investor] to be long dollars, and to position for appreciation for the dollar.” Investors and strategists also largely poured cold water on the idea of a “Plaza Accord” style framework, referring to the deal clinched by the Reagan administration in 1985, which saw countries forge a multilateral agreement for foreign-exchange interventions that depreciated the dollar relative to other currencies.Mark Sobel, a former Treasury official, said supporters of a so-called “Mar-a-Lago Accord” may have “woefully exaggerated perceptions about US leverage over China”, with buy-in from Beijing far from secured.“The secret sauce of the Plaza Accord was that US rates were already coming down,” said Brad Setser, a fellow at the Council on Foreign Relations and a former Treasury official under President Obama. “The macroeconomic backdrop, with interest rate differentials that favour the dollar versus the euro and the yuan, isn’t conducive to a weak dollar.”Franklin Templeton’s Desai said that while Trump could potentially lean on countries that are managing their exchange rate, he would not be able to control the dollar.“It’s not clear to me that he can actually run around screaming about how the euro is too weak against the dollar,” said Desai. “It isn’t; but more importantly, it’s another currency where the central bank doesn’t control it.”The greenback’s rally has shown signs of stalling in recent weeks, with the Dollar index currently trading at 106.8, below the more than 108 it hit late last month.But while analysts highlight that much of the impact of Trump’s presidency has already been priced in by the market, few see this as a sign that the rally is over or that the Republican’s rhetoric could push the currency lower.“He could try to jawbone the dollar,” said AllianceBernstein’s Winograd. “But at the end of the day, the fundamentals tend to win.” More

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$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

The friendless euro, which is heading for a calendar-year drop of nearly 5% on the dollar, was not far from the year’s lows at $1.0518.The gap between U.S. and German ten-year yields is 216 basis points and has widened nearly 70 bps in three months.The yen was on the back foot for a seventh consecutive session – and marginally weaker at 154.17 per dollar in morning trade – as markets have pared chances of a Japanese rate hike this week and see a move in January as more likely.The Federal Reserve announces its interest rate decision on Wednesday and interest rate futures imply a 94% chance of a hike, even as services-sector activity leapt to a three-year high according to an S&P Global purchasing managers survey.The Atlanta Fed’s GDPNow indicator is running at 3.3% for the fourth quarter and the strength of the economy has been lifting yields and supporting the dollar as traders figure this week’s expected cut may be the last for a while.After a cut on Wednesday, markets see about a 37% chance there will be either one 25 bp cut or none at all through the whole of 2025, according to the CME FedWatch tool, up from about 21% a week earlier. “I think the Fed will now be worried about a resurgence of inflation as an unknown policy mix and sticky prices create many paths for inflation to make a comeback in 2025,” said Brent Donnelly, president at Spectra Markets.”And therefore I think they will signal a very cautious approach going forward and lean on language that suggests concerns about inflation and a higher neutral rate.”Besides the Fed, the Bank of Japan, Bank of England and Norges Bank meet this week and are expected to stand pat on Thursday, while the Riksbank is seen cutting rates, perhaps by 50 basis points.Sterling bounced on Monday as a survey of business activity pointed to price rises in Britain while labour data is due on Tuesday, with upward pressure on wages seen adding to the case for caution from the central bank. Sterling last bought $1.2695.The Canadian dollar, squeezed by falling interest rates and the risk of U.S. tariffs, sank to a 4-1/2 year low on Monday as the sudden resignation of Finance Minister Chrystia Freeland put an unpopular government under more pressure.The Australian and New Zealand dollars are pinned near the year’s lows, though were spared any further selling on the latest weak Chinese economic indicators on Monday as markets bet that government spending will ride to the rescue. [AUD/]The Aussie was last steady at $0.6373 and the kiwi inched up to $0.5792. New Zealand increased its bond issuance forecast for the next few years and long-term yields rose. China’s yuan was under gentle pressure at 7.2918 in offshore trade, as dour expectations for Chinese economic growth pushed 10-year bond yields to record lows. More

OTTAWA (Reuters) – Canadian Finance Minister Chrystia Freeland quit on Monday after clashing with Prime Minister Justin Trudeau on issues including how to handle possible U.S. tariffs, dealing an unexpected blow to an already unpopular government.Freeland said she was quitting in the wake of a meeting last Friday with Trudeau, who asked her to take on a lesser post after the two had been arguing for weeks over spending.Public Safety Minister Dominic LeBlanc – a member of Trudeau’s inner circle – was quickly named finance minister of the minority Liberal government.The resignation of Freeland, 56, who also served as deputy prime minister, is one of the biggest crises Trudeau has faced since taking power in November 2015. It also leaves him without a key ally when he is on track to lose the next election to the official opposition Conservatives.A Liberal source said Trudeau wanted Freeland to serve as minister without portfolio dealing with Canada-U.S. relations in name only – in effect a major demotion.Trudeau met the national Liberal caucus later on Monday – including Freeland – but legislators declined to say afterwards what had happened.Labour Minister Steven MacKinnon said there had been a good and frank conversation but gave no details.Trudeau later told a Liberal Party fundraiser in Ottawa that being prime minister was the privilege of his life.”It’s obviously been an eventful day. It has not been an easy day,” he said.The potential threat to his future was underlined when a top member of the opposition New Democrats, who have been helping keep the Liberals in power, said the party would vote to bring down Trudeau next year unless he quit.”If we’re coming up to a straight up non-confidence motion at the end of February, early March, that’s one of the tools that we have,” House of Commons leader for the NDP Peter Julian told the Canadian Broadcasting Corp.”We simply cannot continue like this,” he said, adding he expected Trudeau to have resigned by then.Party leader Jagmeet Singh had earlier been less equivocal when asked about bringing down Trudeau, whom he insisted should resign.Freeland quit just hours before she was due to present a fall economic update to parliament. The document showed the minority Liberal government had run up a 2023/24 budget deficit of C$61.9 billion, much higher than predicted.Trudeau can be toppled if the opposition parties unite against him on a vote of no confidence, though that cannot happen until next year.”Will the Prime Minister stay on? I think he will, but he’s certainly been seriously threatened … it could be that this is the event that will push him over the edge,” said Jonathan Malloy, a political science professor at Carleton University in Ottawa.Parliament is due to break for Christmas on Tuesday and not return until Jan. 27.Domestic media reports said Freeland and Trudeau had clashed over a government proposal for temporary tax breaks and other spending measures.”For the last number of weeks, you and I have found ourselves at odds over the best path forward for Canada,” Freeland said in a letter to Trudeau posted on X.Freeland said the threat of new U.S. tariffs represented a grave threat.”That means keeping our fiscal powder dry today, so we have the reserves we may need for a tariff war. That means eschewing costly political gimmicks, which we can ill afford,” she wrote.Conservative leader Pierre Poilievre said the government was spiraling out of control.”We cannot accept this kind of chaos, division, weakness, while we’re staring down the barrel of a 25% tariff from our biggest trading partner,” he told reporters.’LEADERSHIP CRISIS'”This will likely trigger a leadership crisis within the Liberal caucus … (it) is politically and personally devastating for Trudeau,” said Nik Nanos, founder of the Nanos Research polling firm.Polls show the Liberals are set to be crushed in an election that must be held by late October 2025.Freeland served as trade minister and then foreign minister before taking over the finance portfolio in August 2020. As minister, she oversaw the massive government spending campaign to deal with the damage done by COVID.Trudeau has been under pressure for months from Liberal legislators alarmed by the party’s poor polling numbers, in part due to unhappiness over high prices, and the loss of two safe parliamentary seats in special elections.The party is due to contest another special election in the province of British Columbia later on Monday.’BOMBSHELL’ DECISION”This is quite a bombshell,” said Nelson Wiseman, political science professor at University of Toronto. “I think the problem the Liberals have is that they have no mechanism to remove Trudeau. Only a full blown caucus revolt could do that.”Canada’s 10-year note yields climbed to their highest level since Nov. 28. They were last up 4.2 basis points at 3.2%. The Canadian dollar weakened to a four and a half year low at 1.4268 per U.S. dollar before reversing course.When Trump came to power in 2017 he vowed to tear up the trilateral free trade treaty with Canada and Mexico. Freeland played a large role in helping renegotiate the pact and saving Canada’s economy, which is heavily reliant on the United States.Although tensions between prime ministers and finance ministers are not unusual – Trudeau’s first finance minister quit in 2020 in a clash over spending – the level of invective in Freeland’s letter was remarkable by Canadian standards.Freeland left the same day as Housing Minister Sean Fraser announced he was resigning for family reasons. Another six ministers have either already quit or announced they will not be running again in the next election.Before entering politics in 2013, Freeland worked as a journalist and in senior editorial roles with several media companies, including the Financial Times, the Globe and Mail, and Reuters where she worked from 2010 to 2013. More

WASHINGTON (Reuters) -The U.S. Senate on Monday voted overwhelmingly to advance an $895 billion bill setting policy for the Pentagon toward passage as soon as Tuesday, which would send it to the White House for President Joe Biden to sign into law.The tally was 83 to 12 in favor of advancing the National Defense Authorization Act, or NDAA, to a vote on final passage, comfortably over the 60 needed in the 100-member Senate. The bill advanced despite the inclusion of a controversial provision aimed at banning some gender-affirming care for transgender children of service members.This year’s NDAA authorizes a record $895 billion in annual military spending, covering provisions on purchases of military equipment and boosting competitiveness with archrivals including China and Russia.The 1,800-page bill also focuses on improving the quality of life for the U.S. military.It authorizes a 14.5% pay increase for the lowest-ranking troops, and 4.5% for the rest of the force, higher than usual. It also authorizes the construction of military housing, schools and childcare centers.The bill bans the military health program, TRICARE, from covering gender-affirming care for the transgender children of service members if it could risk sterilization.Including the provision in the bill setting policy for the Department of Defense underscored how transgender issues have become a focus in U.S. politics. President-elect Donald Trump and many other Republicans blasted Democrats for supporting transgender rights during the 2024 election campaign, which ended with Republicans keeping control of the House and taking control of the Senate and White House starting next month.The fiscal 2025 NDAA is a compromise between Democrats and Republicans in the House and Senate, reached during weeks of negotiations behind closed doors. It did not include some other Republican proposals on social issues, including an effort to prohibit TRICARE from covering gender-affirming care for transgender adults and a measure that would have reversed the Pentagon’s policy of funding travel for abortion for troops stationed in states where the procedure is banned. The massive bill is one of the few major pieces of legislation Congress passes every year and lawmakers take pride in having passed it annually for more than six decades.The NDAA authorizes Pentagon programs, but does not fund them. Congress must separately pass funding in a spending bill for the fiscal year ending in September 2025. That bill is unlikely to be enacted before March. More