The last four weeks have delivered more uncertainty and volatility as expected and yet there were still a lot of surprises. Particularly surprising is the retreat of the USD amid rising risk aversion. Is this the end of US exceptionalism and USD supremacy?

January has delivered the volatility that was widely anticipated but not only from the expected sources. USD fundamentals remain strong relative to other major currencies but equity markets suggest that the support from US exceptionalism could fade, at least temporarily.

The USD rallied further in December and economic fundamentals and policy developments suggest that the USD has further upside. The start of 2025, however, is dominated by uncertainties surrounding first policy moves. Trump could surprise by being more moderate or more radical. Current rhetoric suggests the later but that could change quickly. In our view, uncertainty is unlikely to fade quickly and that implies more volatility for FX markets in coming months.