Weekly Insights

Hawkish Fed and a strong dollar year

• The divergence in tone between the Fed and the Bank of England and Bank of Japan continues to reflect US growth and inflation being stronger than in other regions going into 2025.

• The message from the FOMC meeting was hawkish, with the committee signaling a transition to more gradual cuts amid a firmer projected inflation trajectory and diminished risks to employment.

• The silver lining of weak euro area economic growth is continuing gradual deceleration in inflation, now extending to domestic and underlying services components.

• Signals on activity and the labour market in the UK remain subdued and continue to suggest a disinflationary outlook, but strong wage growth has added some uncertainty.

• Governor Ueda's press conference suggested a risk of a Bank of Japan rate hike delay, although the dovish stance could also fuel JPY depreciation and increase the possibility of a January move.

• In China, November's activity data broadly painted a picture of weakened domestic demand, with visible moderation in retail sales growth and softer fixed asset investment.

• While Fed policy remains important, we think a more hawkish Fed into 2025 will not be the main determinant for EM Asia banks and divergence will continue.

• Near-term geopolitical risks may be receding but 2025 should bring renewed uncertainty in EEMEA.

• Fiscal stories have become the focus in Latin America as the end of the year approaches, and that might be sustained into 2025.