Mexican Peso Struggles
In January 2025, the Mexican peso experienced significant volatility due to the US imposing 25% tariffs on Mexican imports, raising concerns over Mexico’s export-driven economy. Investor anxiety led to the peso’s implied single-week volatility reaching its highest level since October 2022. Despite occasional resilience, the currency struggled to gain stability as external pressures, including trade tensions and potential retaliatory measures, dominated market sentiment. The peso’s outlook remains uncertain, with its future performance tied to the outcome of trade negotiations and Mexico’s response to external challenges.
British Pound Holds Strong
The British pound held steady as markets closely watched upcoming policy decisions from the Bank of England. Investors expected a 25-basis-point rate cut to 4.75%, with additional reductions likely later in the year due to worries about the UK’s sluggish economic growth and elevated debt levels.
Yen Takes a Step Higher
The yen was on track for its strongest monthly performance since 2018, driven by anticipation of ongoing rate hikes from the Bank of Japan (BOJ) over the year. Meanwhile, the tendency of other major central banks to lean toward easing monetary policies further boosted the yen’s attractiveness.
USD Strength and the Tarriff war
In January 2025, the US Dollar (USD) saw substantial gains in the forex markets, driven by a combination of geopolitical tensions and economic shifts. One of the primary factors behind its surge was the imposition of 25% tariffs on imports from Mexico and Canada, along with 10% tariffs on Chinese goods, introduced by President Donald Trump. These measures triggered retaliatory actions and intensified fears of a global trade war, further fuelling the dollar’s rise.
As uncertainty gripped the markets, the USD’s safe-haven status made it a preferred choice for investors seeking stability. The dollar posted strong gains against major currencies, most notably reaching a 20-year high against the Canadian dollar.
The Federal Reserve’s consistent monetary policy also played a key role in sustaining the dollar’s upward momentum. While other major central banks signalled potential rate cuts or policy easing, the Fed’s steady approach underscored the dollar’s appeal as a dependable asset during turbulent times.
Overall, January 2025 highlighted the US Dollar’s resilience, as it navigated a volatile market environment and capitalised on the far-reaching effects of US trade policies and global economic uncertainty.