Dollar starts the year with a bang; sterling tumbles

2025 is off to a hot start, with plenty of volatility across financial markets over the first full week of the year and the US dollar rallying on the back of a blockbuster US non-farm payrolls report today, continuing where it left off in 2024. The combination of further key US economic data – next week’s CPI report will be another litmus test – and uncertainty around the incoming Trump administration’s plans on fiscal and tariff policy as inauguration day (20th January) draws nearer suggests that more volatility may lie ahead. Much of the dollar strength which we anticipated after Trump’s win has now occurred: the DXY index is up around 7% since election day. But we continue to think that if, as we expect, Trump enacts significant tariffs in the coming months, that would lead to another leg higher in the dollar, in particular against the Chinese renminbi.