Dollar set to extend Trump rally, says Wall Street

Today’s agenda: Friedrich Merz’s unfunded tax cuts; Trafigura under fresh scrutiny; the rise of US asset managers in Europe; the end of piloted fighter jets; and could bespoke duvets transform sleep?

Good morning. Wall Street is betting the US dollar, which has soared 6.1 per cent since the start of October, will make further gains in a challenge to Donald Trump’s stated desire for a weaker currency.

What’s the forecast? More than half of all major banks surveyed by the Financial Times, including Goldman Sachs, Morgan Stanley and UBS, expect the dollar to rise even further next year. Deutsche Bank said it could reach parity against the euro in 2025, having already strengthened from $1.11 at the start of October to less than $1.05.

What’s driving the rally? Many fund managers are dismissive of Trump’s chances of being able to weaken the US currency as his pro-growth agenda, proposed tax cuts and plans for high tariffs are widely expected to stoke domestic inflation after he takes office next month. This could lead to the Federal Reserve keeping interest rates higher for longer, which in turn could attract more foreign capital into dollar assets. Read more on the incoming administration’s currency conundrum.

For more on US politics, business and markets, sign up for the Swamp Notes newsletter here if you’re a premium subscriber, or upgrade your subscription now. Here’s what else we’re keeping tabs on today:

• Economic data: Germany has this month’s Ifo business climate index, while the UK releases employment data. 

• UK companies: The long-running inquiry into the Post Office IT scandal concludes its oral evidence stage. Thames Water applies to the High Court in London to restructure its debt, estimated to reach £18bn by March next year.

• US presidential election: Electoral college electors meet in their states to vote and confirm the results of the November 5 poll.

• Results: Amentum, Chemring and Hollywood Bowl report.

Five more top stories

1. One in four properties in England will be at risk from flooding by mid-century, according to the Environment Agency after it updated its modelling techniques to factor in the effects of climate change. One analyst said the more pessimistic outlook should “act as a wake-up call for local authorities”.

2. German election frontrunner Friedrich Merz is facing attacks from rivals and economists ahead of the launch of his party’s manifesto. The head of the opposition Christian Democratic Union, which is leading opinion polls, is promising to reduce social security contributions and cut corporation tax while maintaining the “debt brake”, a plan that one critic called “unsound finances”.

3. Exclusive: Sweden has said it is prepared to approve a power cable connecting Germany to southern Sweden if Berlin reorganises its electricity market. Ebba Busch, Sweden’s energy minister, told the Financial Times that the Hansa PowerBridge project, a 700-megawatt connector, would be postponed “until Germany gets its system in order”.

4. Trafigura is coming under heightened scrutiny by some of its lenders after a series of scandals hit earnings and dented the company’s value. Bankers said troubles in the commodities trader’s Mongolian oil division this year were significant enough to trigger questions from their risk committees.

5. Exclusive: The EU is close to signing multibillion-euro deals with Jordan and Morocco to strengthen co-operation on reducing migration to the bloc, said Brussels’ new commissioner for the Mediterranean. Concern with rising support for far-right, anti-immigrant parties has led the EU to increasingly lean on countries in the Middle East and north Africa, offering financial support in return for tougher border control.

• Is mass immigration inevitable? 🎧: In today’s episode of the Economics Show, development economist Lant Pritchett tells Martin Wolf his solution to the issue of migration. But does his idea stand up to scrutiny?

The Big Read

Over the past decade, assets under management by US groups in the UK and Europe have more than doubled, from $2.1tn in 2014 to $4.5tn as of the end of September, according to ISS Market Intelligence. Signalling a broad shift in global money management, powerful American asset managers are shaking up the market and forcing their transatlantic rivals to partner and scale up — or exit the sector.

We’re also reading . . . 

• Gig economy: Apps that let retailers hire freelance staff by the shift are increasing in popularity and beginning to creep into shops and restaurants.

• Manned fighter jets: Elon Musk’s attack on F-35s has raised questions over piloted aircraft at a time when drones are playing a bigger role in aerial combat.

• Daniel Křetínský: The Czech tycoon is set to walk a tightrope in order to clinch his takeover of the Royal Mail and transform it into a modern postal service.

Chart of the day

The state of the London Stock Exchange reflects a deeper malaise in the UK’s business environment, and British authorities have rightly raised efforts to revive it, writes our editorial board. The government must now act quickly to regain business confidence and give the LSE more than a fleeting chance of revival.

Take a break from the news

Could a bespoke duvet transform your sleep? From handmade varieties with anti-microbial fibres and sustainable down, to customised dual-fill duvets for partners with different sleeping temperatures, HTSI’s Inès Cross searches for the ultimate bedding perfect for every sleeper.