Paused rate cuts and full-blown currency wars await markets and investors in 2025, predicts deVere Group CEO Nigel Green.
Investors should prepare for heightened volatility in global markets as much-discussed potential trade wars risk morphing into full-blown currency wars under Donald Trump’s leadership, Green warns. While possible trade wars have dominated headlines, “the prospect of currency wars—where nations deliberately weaken their currencies for competitive advantage—remains underappreciated.”
Trump’s track record and rhetoric point to a renewed focus on tariffs and dollar dynamics, two factors that could send shockwaves through financial markets and global trade systems.
“In Trump’s previous term, his administration repeatedly signalled dissatisfaction with a strong dollar, accusing major trading partners, including Europe and China, of unfairly manipulating their currencies to gain a competitive edge. Currency movements became political weapons. As fiscal divergence widens across economies, this risk is resurfacing,” Green warned. “The seeds of a currency war are already being sown.”
“A new Trump administration is likely to lean heavily on tariffs and protectionist measures, which historically have triggered retaliatory moves—both through trade and through deliberate currency depreciation. Investors must understand the consequences and position portfolios accordingly.”
The dollar has strengthened significantly since the recent election, bolstered by the Fed’s cautious stance on rate cuts and the comparatively robust US growth outlook. However, it’s this very strength that could reignite tensions. Trump’s past policies indicate that a strong dollar—while beneficial in some respects—is seen as detrimental to the competitiveness of US exports.
In response, pressure could mount on trading partners like Europe and China to weaken their currencies, either through monetary policy or other interventionist tactics, to offset the impact of tariffs.
“We’re currently seeing the Federal Reserve and European Central Bank (ECB) respond to divergent economic realities,” Green said. “The US is grappling with persistent inflation and a steady growth trajectory, keeping the Fed cautious on interest rates.
“Meanwhile, Europe faces stagnation and disinflation risks, with the ECB likely to keep rates lower for longer. These contrasting realities could exacerbate dollar strength and leave the euro exposed.”
For investors, the interplay of trade and currency moves poses both risks and opportunities. If Trump follows through on significant tariffs—as markets increasingly expect—growth in major trading partners like Europe and China will take a hit. Central banks in these regions are likely to respond by loosening monetary policy further, suppressing interest rates and weakening their currencies.
China already faces economic headwinds and may look to the renminbi as a tool to absorb the shock of tariffs. In Europe, deposit rates could slide even deeper into negative territory as the ECB fights to stave off a recession.
“The knock-on effects are clear,” Green said. “Weaker currencies in Europe and China would amplify dollar strength, while escalating tensions could force the US to counteract, intentionally or not.
“The potential for a chaotic spiral—where tariffs lead to currency devaluations and further retaliatory measures—is very real. A full-blown trade and currency war would hit risk-sensitive currencies, create inflationary pressures in the US, and disrupt global supply chains.”
Green cautioned that Trump’s policies will create winners and losers across markets in 2025 and beyond, and the dollar’s trajectory will be a central focus. Investors who fail to prepare for the fallout of trade and currency conflicts risk being caught flat-footed in an increasingly volatile environment.
Mounting evidence suggests the Federal Reserve will not cut interest rates in the first half of 2025 – even if it does so before the year-end. Green made the prediction as persistent inflationary pressures, coupled with a resilient US labor market and fiscal policies expected from the incoming Trump administration, cast significant doubt over any near-term monetary easing.
Despite market hopes for a Fed rate cut as early as December, recent data reveals that inflation remains a major concern. The US Consumer Price Index (CPI) for November rose to 2.7% on a 12-month basis, marking an uptick from October, while core inflation sits stubbornly at 3.3%. Such figures underscore that price pressures are far from subdued despite earlier signs of cooling. The Fed will be hard-pressed to justify loosening monetary policy while inflation regains momentum.
The robust US job market complicates matters further. Unemployment remains near historic lows, and labor market strength typically dissuades policymakers from cutting rates. Wage growth, which fuels consumer spending, could keep inflation elevated well into 2025.
“We’re entering a phase where inflation remains a persistent threat, and interest rates are unlikely to come down as quickly as markets had hoped,” Green said. “This calls for a careful rebalancing of portfolios. Investors need to prioritize quality assets, build up inflation-resistant positions, and adopt a more defensive stance.”
“This comes amid growing market pressure on the Federal Reserve to ease monetary policy to sustain economic growth. However, policymakers can’t risk further stoking inflation, especially as President-elect Trump’s proposed agenda of tax cuts, deregulation, and large-scale infrastructure spending is expected to drive inflation higher in the coming months.”
Green’s four key investor considerations for 2025
Bond market opportunities: “While higher rates have battered bond prices over the past two years, fixed income assets are now presenting substantial value. Long-term government and corporate bonds, in particular, can offer stable returns as inflation expectations moderate and investors look for safer havens.”
Quality equities: “Investors should focus on companies with strong balance sheets, stable cash flows, and proven pricing power. These businesses are better positioned to weather an environment of higher borrowing costs and inflation.”
Diversification into inflation hedges: “Assets such as gold, Bitcoin and commodities remain essential tools for portfolio protection. In addition, dividend-paying stocks can provide consistent income streams to offset the erosion of purchasing power caused by inflation.”
Minimizing overexposure to risky sectors: “Sectors reliant on cheap borrowing, such as tech and growth stocks, could face increased headwinds if rates remain elevated. Investors should reassess their exposure and prioritize sectors that benefit from inflation and steady economic demand, such as energy, utilities, and healthcare.”
Green concluded that in 2025, strategic investors will seize this moment to reposition themselves for the new reality—a reality where caution, vigilance, and adaptability are paramount.