Dollar Outlook Downgraded: Credit Agricole Predicts Slowing US Growth, GBP/USD Forecast at 1.36 by End-2025

Financials

22 days agoPWG Publications

Introduction to the Dollar Outlook

In a recent analysis, Credit Agricole posited that the US dollar (USD) will not experience a rally akin to its 2018 surge in 2025. This prediction comes amidst mixed economic signals and changing monetary policy stances around the globe. Key factors influencing this forecast include slowing US growth, stagflation risks, and the already strong position of the USD. Additionally, Credit Agricole suggests that the GBP/USD exchange rate may stabilize around 1.36 by the end of 2025, reflecting broader international economic trends.

Factors Affecting the Dollar's Future

Several key factors are expected to shape the dollar's trajectory in 2025:

Economic Conditions

Slowing US Growth: Unlike the robust growth experienced in 2018, 2025 is projected to see slower economic expansion in the United States. This slowdown is partly due to reduced fiscal stimulus and waning consumer confidence.
Inflation Dynamics: Inflation, which drove rate hikes in 2018, is expected to moderate in 2025. However, stagflationary risks—marked by slow growth and high inflation—could still impact the economy, complicating monetary policy decisions.

Monetary Policy and Interest Rates

Fed Rate Cuts: The Federal Reserve is anticipated to adopt a more dovish stance, cutting interest rates to counter economic sluggishness. This easing cycle could temper the USD's strength compared to other currencies.
Global Monetary Environment: Other central banks, like the European Central Bank (ECB) and the Bank of Japan (BoJ), are also adjusting their policies. The ECB might maintain a cautious approach due to ongoing economic challenges in Europe, while the BoJ may gradually normalize its policies.

Currency Exchange Forecasts

GBP/USD Outlook

The GBP/USD exchange rate is a critical indicator of global macroeconomic trends. Credit Agricole's prediction that this rate will stabilize around 1.36 by the end of 2025 reflects broader expectations for currency markets:

Sterling Strength: The British pound (GBP) has shown resilience despite economic challenges in the UK. Factors such as Brexit uncertainty and domestic economic policies will influence its value against the USD.
USD Strength: The strong starting point of the USD in 2025 could limit significant gains or losses, especially if it continues to serve as a safe-haven currency during geopolitical uncertainties.

Global Economic Risks and Opportunities

Emerging Trends

Geopolitical Risks: Escalating tensions between major economies, particularly the US and China, could impact currency markets. Such risks might boost the USD temporarily as investors seek safer assets.
Supply Chain Disruptions: A terms-of-trade shock could reignite stagflationary pressures, affecting global financial conditions and economic growth.

Economic Sectors to Watch

Banking and Financial Services

Credit Agricole's Performance: The bank is targeting a Return on Tangible Equity (ROTE) above 12% for 2025, signaling confidence in its financial health despite global economic uncertainties[4].
Sector Outlook: The financial sector, particularly banking, is likely to face challenges due to high interest rates and regulatory pressures. However, diversified banking models like Credit Agricole's are expected to stabilize profits through cost discipline and digitalization efforts[3].

Conclusion

In summary, Credit Agricole's prediction for the USD outlook in 2025, coupled with the forecast for GBP/USD at 1.36 by year-end, reflects complex international economic dynamics. As the global economic landscape evolves, investors and policymakers must navigate challenges posed by slowing growth, monetary policy shifts, and geopolitical risks. Whether the USD will regain strength or face downward pressure will depend on these factors, making the currency markets a focal point for economic analysis and investment strategy decisions in the coming years.

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