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The U.S. dollar continues to flex its muscles, turbocharged by President-elect Donald Trump’s bold return to the global stage, signalling seismic shifts that could send shockwaves through markets far and wide. Emerging-market stocks, Asian currencies, and global equities are poised for a potential battering as Trump’s tariff-centric policies loom larger. While hedging has begun, it’s just the tip of the iceberg—the market hasn’t even scratched the surface of what’s to come.

Europe finds itself on shaky ground. With growth stagnating and political drama boiling over, policymakers are hamstrung. France is doubling down on austerity, while Germany’s government has crumbled over a standoff on debt limits. The European Central Bank (ECB) is left holding the bag, and expectations are mounting for rate cuts to 1.75% by spring 2025. The euro, already under pressure, could slide perilously close to parity with the dollar by early to mid-2025

Within the G10 currencies, the Swedish krona stands out as a sitting duck. An open economy coupled with low interest rates makes it a prime target for volatility, and low-yielders are primed to get hit with the silly end of the tariff stick.

Meanwhile, all FX eyes are back on USD/JPY as the dollar carry is back, which could rocket to 161 if U.S. Treasury yields break past 5%—a scenario becoming increasingly plausible.

The People’s Bank of China (PBOC) is fighting to keep the renminbi on a leash. By setting daily USDCNY fixings just below the critical 7.20 mark, Beijing is sending a clear signal: they’re trying to manage domestic market expectations and stave off a full-blown capital outlaw spiral. Yet, the offshore yuan has drifted over 1,000 pips away from its onshore counterpart, flashing bearish sentiment about China’s economic outlook like a neon warning sign.

Markets are bracing for a wild ride in this swirling storm of fiscal uncertainty and political maneuvering. With Trump’s aggressive policies threatening to redraw the global economic map, we’re looking at a financial landscape that’s as volatile as it is transformative. Buckle up—it’s going to be a bumpy journey.

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