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This year marks an inflection point. The re-election of Donald Trump as the US president in 2024 in part reflects an ongoing reevaluation of America’s place in the world by Americans themselves. In an idiosyncratic way, and perhaps not fully conscious, the Trump administration’s rhetoric and actions signal the American political elite recognizing the long American century is over: the end of uncontested U.S. economic hegemony is at hand. 

While self-styled as a champion of exceptionalism and “America First”, the Trump administration unwittingly articulated the recognition that the United States no longer dictate the rules of the global economy with impunity.

The evidence is plentiful, if at times easy to overlook in the storm of daily news. The share scale of China's rise is daunting, even if it would engage the world as a more open and more balanced economy, and leaving aside policies that appear to have weakened US support abroad and increasing domestic fissures at home. 

Re-Birth of the Monroe Doctrine

No moment encapsulates this shift more than Trump’s widely noted “G2” framing for his meetings with Chinese President Xi Jinping. Before a high-profile summit this autumn, Trump took to his platform of choice, declaring: “THE G2 WILL BE CONVENING SHORTLY!” The term “G2”—evoking an implicit parity between Washington and Beijing—was once Beijing’s preferred nomenclature for a world re-centered on two superpowers, not one. 

For the U.S. to echo this language out loud is not just a stylistic tic; it’s a sign of reluctant adaptation. Beijing’s vision of shared primacy has been on offer for a decade or more, but until recently, no U.S. leader would have so publicly ceded rhetorical space to it. The realignment is even clearer if we look beyond China to the revival of “sphere of influence” thinking in U.S. policy toward the Western Hemisphere. 

Where past administrations might have cloaked interventions in Latin America and the Arctic in the language of values or free trade, Trump’s revival of the Monroe Doctrine has been direct. Pressure on Canada, Greenland, Panama, Brazil, Argentina, and Venezuela is justified not as promoting liberal order, but as advancing the U.S. interest in its backyard—language usually anathema for the self-styled global champion of universalism. Economic levers and even military signaling have replaced appeals to a “rules-based order."

Abandoning of the Open Door for Spheres of Influence

This is a meaningful policy turn. For generations, the U.S. pushed for an open world economy because such a system played to its strengths. As the world’s dominant economic power, it had little to fear from market competition. The “open door” principle made sense if America was confident it would win in every fair contest. 

Yet, as power diffuses and more economies climb the value chain, the calculus changes. When relative advantage is perceived to erode, the temptation grows to exchange the rhetoric of universality for the practice of particularism—managing influence, brokering spheres, protecting one’s patch.

We should not mistake this shift as either uniquely Trumpian or uniquely abrupt; rather, it is the awkward first step in the U.S. disposition toward a multipolar reality. Even subsequent administrations, while offering the language of restored alliances and revised trade deals, have largely retained measures emblematic of retreat from absolute free trade: persistent tariffs, “Buy American” rules, and skepticism about new multilateral agreements. Critics often decry these moves as protectionist or isolationist, but more fundamentally, they point to diminished confidence in the inevitability of American structural advantage.

Shifting Fed and BOE Expectations

Amid this recalibration of America’s external approach, markets have been busy recalibrating their views about the near-term path of global monetary policy. Comments from several Federal Reserve governors offset the hawkishness of some regional presidents, and the market has swung back hard toward a rate cut by the Federal Reserve in at its December meeting.

The Beige Book, prepared for the FOMC meeting, revealed that nearly half of the Fed districts report a decline in hiring, and softer consumer spending, except for high-end retail. The government shutdown—the longest on record—may shave a few tenths off Q4 activity.

The picture abroad is, if anything, more fluid. In the United Kingdom, an unimpressive stretch of economic data has led the markets to price in a growing likelihood that the Bank of England will ease rates when it meets on Dec. 18. The more restrictive Autumn Budget and its disinflation elements pushed the market further. Gilt markets and swaps indicate that investors now see a cut as base-case, expecting policymakers to respond to persistent weaknesses in output and inflation misses.

BOJ Hike Coming?

Contrast this with Australia. A surprisingly strong employment report, paired with stickier-than-expected inflation, has swung consensus the other way: the Reserve Bank of Australia is now widely seen as having wrapped up its easing cycle for this year. Markets have pushed out further rate cuts until at least mid-2026, recalibrating rate expectations upward to reflect renewed inflation vigilance and diminished recession risk.

And then there’s Japan. Monetary policymakers at the Bank of Japan, after months of telegraphing gradual policy normalization, have watched markets sharply reduce the perceived likelihood of a rate hike at the next meeting. Yet, the combination of the yen's weakness and firm data (including November Tokyo CPI and October retail sales and industrial production) saw the pendulum swing back and at the end of November was discounting a little more than a 55% chance of a hike, the most since late October. 

Taken together, these policy pivots and strategic signals reinforce the message: the world is less willing to take American leadership for granted—and so is America itself. The G2 language, revived spheres of influence, and a nuanced approach to international rules all suggest that a more plural era is dawning. For investors, traders, and policymakers alike, adaptation—not nostalgia—will be the key to navigating what comes next.
 

Bannockburn World Currency Index 

Bannockburn's World Currency Index, a GDP-weighted basket of the currencies of the dozen largest economies, eked out a minor gain, for the first time in three months in November.

Among the G10 components, the Japanese yen was by far the weakest component. It fell by about 1.4% after falling by more than 4% in October. Diverging policy expectations and the threat of intervention may have capped the greenback in front of JPY158. Sterling and the euro performed best among the G10, rising by about 0.65% and 0.55%, respectively. The dollar bloc underperformed.

Among the emerging market components, the South Korean won tumbled by about 2.55%. While foreign investors were heavy sellers of South Korean equities, they were even larger buyers of South Korean bonds. The drag on the currency may have been more a function of the strong domestic demand for foreign stocks and bonds. In addition to the won, the Indian rupee was the only other emerging market currency to have weakened (-0.75%) in November. 

The Chinese yuan rose to new highs for the year in November, encouraged by the PBOC's lowering of the dollar's reference rate on a trend basis. However, when everything was said and done, the yuan rose by about 0.65% in November. The Mexican peso rose by about 1.4%, and it would have been the strongest currency in the BWCI if it weren't for the Russian ruble's 4.3% appreciation. 

We had suggested last month that the BWCI decline did not look complete. It recorded a six-month low on Nov. 21, but as market sentiment shifted back toward a December Fed cut, the BWCI began recovering. Recall that it ended 2024 a little below 88.00 and rose to almost 92.00 at the end of Q2 25. It pulled back to around 90.30, which was tested twice in November before recovering. We suspect the recovery will continue in the month ahead and into next year.

U.S. Dollar

The federal government re-opened after a record-long shutdown. The economic impact is expected to be temporary and coming off what appears to be a strong Q3, which the Atlanta Fed says was tracking a bit more than 4% at an annualized pace.

Nevertheless, the labor market continues to slow gradually. Job growth in Q3 averaged 62,000 and 55,000 in Q2. This is around half the pace seen in Q2 and Q3 24. Unemployment in September reached a four-year high of 4.4%. In June and September, the median forecast among Fed officials was unemployment would peak at 4.5%. The risk is on the upside.

President Trump has lowered many tariffs, which includes China and foodstuffs from Brazil. A deal was struck with Switzerland (tariffs cut to 15% from 39%), and there is a reasonable chance that the 50% tariff on India will be reduced. The bipartisan Congressional Budget Office estimates that the average effective U.S. tariff is now around 16.5% compared with 20.5% a few months ago.

One implication is that the tariff revenue contribution to reducing the deficit has been cut to around $2 trillion from $3 trillion previously projected. Another implication is that the $2000 tariff dividend that the administration has suggested is unlikely to be approved by Congress.

The market initially downgraded the chances of a third Fed cut this year. However, a week after meeting with the large banks over the lack of use of the Standing Repo Facility, NY Fed President Williams endorsed the "further adjustment in the near term" for interest rates was taken to heart by the market, and the odds of a cut were upgraded to around 80% in late November.

Lastly, President Trump is expected to announce Powell's successor at the helm of the Fed by the end of the year. Hassett, the director of the National Economic Council, is seen as the favorite.

Euro

The euro fell to a three-month low in early November near $1.1470 and recovered to about $1.1655 around the middle of the month before it stalled. Pricing in the swaps market is consistent with the ECB having finished its easing cycle with the deposit rate at 2.0%, a quarter-point above estimates of the neutral rate.

With renewed speculation of a Federal Reserve rate cut next month, the U.S. two-year premium over Germany has narrowed to a new low for the year, a little below 145 bp. Still, with the Eurozone economy struggling to sustain growth over 1% year-over-year in the coming quarters, and inflation threatening to slip below 2% in the coming months, the risk of a rate cut in H1 2026 should not be entirely ruled out.

Meanwhile, Russia's hybrid warfare in Europe seemed to escalate with the recent rail explosion in Poland, and Europe is lagging the U.S. and China in artificial intelligence and the developing of rare earth process capability. The Euro Stoxx 600 had outperformed the U.S. S&P 500 in H1 25 but is now trailing year-to-date by a couple of percentage points.

In addition to the incomplete union, the Eurozone also suffers from weak leadership. The National Assembly in France rejected parts of the 2026 budget, leaving a narrow window of opportunity for a compromise in December. Prime Minister Lecornu is unlikely to survive in office if the budget is rejected. The inability of German Chancellor Merz to lift economic prospects has weighed on his public support, and the AfD is running ahead of his CDU in polls.

A break of $1.1400 would weaken the near-term outlook and could spur losses toward the $1.1250 area. On the top side, the $1.1700-50 area offers important resistance. 

Presented below are the indicative closing prices as of Nov. 28, with the previous prices displayed in parentheses.

• Spot: $1.1600 ($1.1535)
• Median Bloomberg One-month forecast: $1.1700 ($1.1675)
• One-month forward: $1.1620 ($1.1555)
• One-month implied vol: 5.3% (5.3%)

Japanese Yen

The yen weakened for the third month in November, and the sixth month in the past seven. The dollar bottomed in April a little below JPY140 and last month reached nearly JPY158, the highest since mid-January.

The apparent reluctance of the Bank of Japan to hike rates, coupled with fiscal support, has seen long-term Japanese interest rates surge and the yen weaken. A JPY17.7 trillion package of new money ($122 billion) was introduced in a larger package of JPY21.3 trillion, which includes cutting the gasoline tax, increasing the tax-free income threshold, providing new funds for regions, subsidies for household energy, and a one-off cash payment for children.

The government estimates that the measures will cut inflation by an average of 0.7 percentage points from February through April 2026. The pendulum of expectations swung away from a BOJ rate hike at the conclusion of its meeting on Dec. 19. The market had appeared to practically give up on it, and then the pendulum swung hard into the month-end, with the help of firm economic data. The odds of a hike discounted by the swaps market jumped to almost 60% by the end of November, rising without fail in each of the last five sessions.

In the current context, a rate hike would also make the threat of material intervention to combat what Japanese officials called a one-way market. A new challenge emerged in late November as Beijing responded forcefully to Prime Minister Takaichi, who essentially reiterated Tokyo's position about a regional crisis over Taiwan, which she identified as a "survival-threatening situation," which provides the legal justification for the use of Japanese military.

China has struck back, discouraging tourism to Japan, suspending moves to resume imports of Japanese sea food that had previously been banned, and halting approvals of new Japanese films. Beijing has threatened additional measures, and Takaichi cannot retract her remarks, though she has tried to temper them. 

• Spot: JPY156.20 (JPY154.00) 
• Median Bloomberg One-month forecast: JPY150.20 (JPY150.30) 
• One-month forward: JPY155.65 (JPY153.55)
• One-month implied vol: 9.1% (7.8%)

British Pound

After it reached a high near $1.3725 on Sept. 17 when the Federal Reserve delivered its first rate cut of the year, sterling trended lower and reached almost $1.30 in early November. The halfway mark of this year’s rally is near $1.2945. Sterling recovered in the last part of the month as rate cut speculation weighed on the U.S. dollar more broadly, and the Autumn Budget was greeted favorably by what was a skeptical market. Sterling and gilts rallied in response.

The swaps market was more confident of a rate cut at the Dec. 18 MPC meeting, and at least one rate cut in 2026 is priced in with a little more than a 50% chance of another. The fiscal tightening of the budget as a larger-than-expected buffer (GBP22 billion vs. GBP15 billion) was established and prompted the Office for Budget Responsibility to reduce its 2026 growth projections to 1.4% from 1.9%.

We suspect an important low is in place for sterling and that it can recover into the $1.3430-50 area in the coming weeks. Sterling had fallen to a two-and-a-half-year low against the euro in mid-November, and a recovery in underway, though the divergent policy trajectories may limit the extent.

• Spot: $1.3235 ($1.3150)
• Median Bloomberg One-month forecast: $1.33 ($1.300335)
• One-month forward: $1.3240 ($1.3155)
• One-month implied vol: 5.9% (7.0%)

Canadian Dollar

The U.S. dollar reached a seven-month high near CAD1.4140 in early November. It stopped a little shy of the mid-mark of this year's range, closer to CAD1.4165. The low for the month was recorded on Nov. 18, near CAD1.3970, and it held the up trendline connecting the September and October lows.

The Bank of Canada may have completed its easing cycle that began in June 2024 with its overnight lending rate at 5%. It now stands at 2.25%. This seemed especially true after the minority Liberal government's budget squeaked through Parliament.

The budget deficit looks set to double to about 2.5% of GDP as spending is boosted in three main areas: defense, infrastructure, a new "Build Canada Homes" effort, and while the tax cut for the lowest income bracket has already been implemented, the disruption emanating from the U.S. is palpable. The current account deficit through September deteriorated to about CAD37.8 billion compared with a CAD10.5 billion shortfall in the same period last year.

At the same time, foreign demand for Canadian bonds and stocks waned. In the first nine months of 2024, foreign portfolio investment in Canada was almost CAD144 billion, but it slowed dramatically to nearly CAD58 billion this year.

Through November, the Canadian dollar has gained about 2.6% against the greenback, making it one of the weakest G10 currencies. We expect the combination of looser fiscal policy and standpat monetary policy (while the Fed cuts rates) will help the Canadian dollar perform better next year. 

• Spot: CAD1.3975 (CAD 1.4010) 
• Median Bloomberg One-month forecast: CAD1.3900 (CAD1.3900) 
• One-month forward: CAD1.3955 (CAD1.3990) 
• One-month implied vol: 4.2% (3.9%)

Australian Dollar

The Australian dollar's 2025 high was recorded on Sept. 17, when the Federal Reserve cut interest rates for the first time this year. It reached a little above $0.6700. The broad U.S. dollar recovery sent the Australian dollar to a three-month low last month, at around $0.6420. The August lows, before the run-up to the Fed cut, were about $0.6415. However, Australia’s economic fundamentals are more constructive, and the Australian dollar recovered to $0.6560 by the end of November.

Economic growth is stable at around 2.0% year-over-year. The labor market has stabilized after deteriorating. Inflation is elevated at about 3%, and the central bank has signaled an extended pause in its rather shallow easing cycle of 75 bp this year. The derivatives market suspects the Reserve Bank of Australia may be done, but the risk of another cut is seen as the greatest in Q2 26. A recovery in the exchange rate in December could see it challenge the October high near $0.6625. 

• Spot: $0.6550 ($0.6545) 
• Median Bloomberg One-month forecast: $0.6600 ($0.6625) 
• One-month forward: $0.6555 ($0.6550) 
• One-month implied vol: 7.5% (7.4%)

Mexican Peso

The dollar reached a two-month high near MXN18.77 in early November before retesting the lower end of its recent range in the middle of the month, at around MXN18.2530. The October low was MXN18.24, while September saw the low for the year near MXN18.20. Given the peso's modest volatility and healthy yield pick-up, it still remains a favorite long against the dollar, yen, and Swiss franc.

Nevertheless, the central bank's easing cycle has seen the attractiveness of the carry ease, while Brazil and Colombia offer higher yields, even if more volatile, alternatives to the Mexican peso. Not only did the economy contract by 0.3% quarter-over-quarter in Q3 and by 0.1% year-over-year, but the economy finished the quarter on a particularly soft note.

Through September, industrial production for four consecutive months, and the IGAE economic activity report, which is similar to a monthly GDP estimate, fell by 0.63%, the largest monthly decline this year. The central bank has chopped its overnight rate target by 250 bp this year to 7.20%.

Banxico meets on Dec. 18, and even though inflation remains elevated, another rate cut seems more likely than not. We suspect a rate cut by the Federal Reserve the previous week would bolster the chance of a cut in Mexico. At the same time, the external account is robust, despite the modest slowing in worker remittances, its number one source of hard currency. 

• Spot: MXN18.2955 (MXN18.55) 
• Median Bloomberg One-month forecast: MXN18.4940 (MXN18.6025) 
• One-month forward: MXN18.3550 (MXN18.6075) 
• One-month implied vol: 7.1% (7.3%)

Chinese Yuan

The yuan edged higher in November against the U.S. dollar and more broadly. It rose against all of the regional currencies but the Malaysian ringgit, and against all the G10 currencies. The PBOC set the dollar's reference rate at a new low for the year on Nov. 27 (CNY7.0789). With its exports strong and facing criticism, many suspect Beijing is willing to accept modest currency appreciation, with the dollar's fix gradually approaching CNY7.0.

Beijing also launched a new import initiative "Big Market for All", under which five countries are year are given special access to China's domestic market. While there is recognition of China's supply chain dominance in rare earth processing, specialty magnets, and many precursors of important pharmaceuticals, there seems to be less appreciation for China's efforts to secure cheap energy, which includes using saltwater to create biofuels, bamboo to make biodegradable plastic, and breakthroughs in quantum computing, solid-state batteries, and integrating AI with robotics.

Yet, between the continued drag from the property market and the campaign to curb over-investment, the economy struggles to find upside traction. New efforts are being considered to support the property market, using a combination of subsidies and tax breaks. Separately, although the new five-year plan has boosting consumption as its third priority (manufacturing and technology are the first two), Beijing has announced several new initiatives that may support domestic consumption, including expanded child benefits, higher minimum wage, and increased pension payouts. 

• Spot: CNY7.0740 (CNY7.1200) 
• Median Bloomberg One-month forecast: CNY7.0990 (CNY7.1095) 
• One-month forward: CNY7.0520 (CNY7.0870) 
• One-month implied vol: 2.4% (2.5%)

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