The USD's early 2025 rally has faltered, weighed down by softer inflation data and speculation that Trump’s administration may implement gradual tariffs to reduce inflationary shocks. In the lead-up to Trump’s inauguration, shippers have scrambled to frontload freight to US ports, fearing aggressive tariffs, especially on goods from China and Mexico. While the full scope of the tariff strategy remains unclear, a gradual approach could alleviate some concerns. Next week, attention will focus on the preliminary PMIs, the UMich Consumer Sentiment, and the first policy announcements of Trump's second term. Amid the uncertainty, businesses are rushing to adjust supply chains, and consumer demand stays strong, but the tariff uncertainty remains a massive cloud hanging over markets.

The Canadian dollar gained support this week from rising energy prices driven by stricter US sanctions on Russian energy producers and expectations of a gradual implementation of US tariffs. However, uncertainties loom ahead of Trump’s January 20 inauguration, as potential trade threats or executive orders targeting Canadian exports could weigh on the currency. While Canadian economic data has outperformed US data, the CAD remains under pressure due to the BoC's dovish stance. Upcoming CPI and retail sales will be crucial in determining whether the BoC maintains its dovish approach, with markets pricing a 70% chance of a January rate cut.

Expected weekly trading range: 1.428 - 1.472

This week, the euro benefited from an improving sovereign credit risk outlook, bolstered by recent comments from French PM François Bayrou hinting at a potential compromise on the 2025 budget. Falling EGB yields have eased concerns over rising borrowing costs, while hopes for a coalition of mainstream political parties in Germany's February elections have reduced growth and fiscal worries. Looking ahead, key Eurozone PMIs, the German ZEW index, and ECB speeches will be pivotal as investors assess signs of economic recovery and the likelihood of less dovish ECB policy adjustments.

Expected weekly trading range: 1.468 - 1.512

The British pound's recent selloff has eased as December's dip in inflation and weak November GDP helped alleviate some stagflation fears. However, concerns about the economic outlook persist. Key releases next week, including January's preliminary PMIs and labour market data for November and December, will be critical in shaping the pound's trajectory. Evidence of improved business confidence and a resilient labour market could mitigate growth pessimism. Despite these challenges, the GBP appears undervalued against the euro, while GBP/USD is likely to follow broader dollar trends.

Expected weekly trading range: 1.734 - 1.786

The Japanese yen gained strength this week as markets priced in a higher likelihood of a Bank of Japan rate hike, alongside expectations of a more gradual approach to US tariffs under the Trump administration. The BoJ meeting next week will be pivotal, with an 80% chance of a 25bp rate hike already priced in by markets. However, risks remain if the BoJ opts for a dovish hike or refrains from raising rates. Governor Ueda's press conference and the central bank's updated economic and inflation forecasts will be closely scrutinized for signs of future rate moves.

Expected weekly trading range: 106.32 - 109.56

The Swiss franc had a moderate start to 2025, benefiting from its safe-haven appeal against the euro and pound but underperforming compared to other safe-haven assets such as JPY and USD. The Swiss National Bank’s dovish stance remains a headwind, as its growing rate disadvantage weighs on the currency. Next week, with limited domestic data, the CHF is likely to be influenced by global risk sentiment and US developments, including policy announcements from President Trump and his speech at the World Economic Forum.

Expected weekly trading range: 0.62 - 0.64

This week, the Chinese Yuan remained stable, bolstered by stronger-than-expected Q4 GDP growth, which surpassed market forecasts. Moving forward, the outlook for the CNY is shaped by expectations of slower growth, as well as government measures aimed at supporting the economy, including monetary easing. While the yuan is expected to face some downward pressure, particularly due to potential US tariffs, a sharp devaluation remains unlikely. China's continued economic policies and global trade dynamics will play a key role in the yuan's performance in the week ahead.

Expected weekly trading range: 4.98 - 5.14

This week, the Indian Rupee faced significant volatility, hitting a record low against the US dollar due to continued foreign institutional investor outflows. The Reserve Bank of India (RBI) intervened by selling dollars to stabilize the currency and mitigate depreciation. Moving forward, the INR's performance will largely depend on global economic conditions, capital flows, and inflation trends. With the RBI's active interventions and ongoing inflation control measures, the currency's outlook remains closely tied to these factors in the coming week.

Expected weekly trading range: 58.89 - 60.69

The Australian dollar strengthened this week, supported by resilient domestic labour market data that reduced expectations of a rate cut by Reserve Bank of Australia. Additionally, reports suggesting a gradual rollout of US tariffs under the Trump administration have boosted risk sentiment, indirectly benefiting the AUD. Looking ahead, Trump’s inauguration and subsequent trade policy announcements will be key in determining the currency's trajectory. Markets will also closely monitor Australian inflation data due the following week.

Expected weekly trading range: 0.89 - 0.91

The New Zealand dollar rallied this week on the back of stronger-than-expected NZIER business expectations, which led to a reduction in market expectations for a Reserve Bank of New Zealand rate cut. Expectations of a gradual US tariff implementation under Trump further supported the currency. The focus now shifts to Q4 inflation data. Given that markets are pricing in significant rate cuts, a stronger inflation print could provide additional upside for the NZD by tempering expectations of aggressive monetary easing.

Expected weekly trading range: 0.80 - 0.82

The Mexican peso has seen some volatility this week, influenced by ongoing market expectations surrounding potential shifts in US trade policies. The peso weakened earlier in the week, reflecting concerns about new tariffs and the broader impact on Mexico's economy. However, it regained some ground as markets adjusted their positions ahead of political developments. Moving into next week, the MXN is likely to remain sensitive to any signals from the US administration regarding trade policies, as well as economic data releases.

Expected weekly trading range: 14.14 - 14.57