Nov 28 (Reuters) - JPMorgan's baseline case is for the USD to strengthen to new highs in 2025 on amplified U.S. exceptionalism, still-high interest rates, stronger productivity and a growing innovation gap, according to a recent note to clients.

The bank thinks that U.S. Federal Reserve rate cuts will not be a sufficient condition to reverse recent USD strength, let alone drive sustained USD weakness. In its opinion that would also require growth to pick up outside of the United States, which now looks unlikely. The high-yielding status of the USD will keep the USD smile narrow, but large U.S. twin deficits will keep JPMorgan vigilant for risk factors.

JPMorgan's tradable themes for 2025 are 1. Tariff risk, which is broadly USD bullish. 2. Relative reliance on manufacturing. 3. Mitigating policy responses from the rest of the world. 4. Non U.S.-election-related issues, such as: recovery for early rate cutters, valuations, repatriation potential and rate convergence.

The note goes on to say that, more broadly, conditions are in place for G-10 carry trades still to deliver positive but moderating returns, as long as the U.S. terminal rate remains elevated, but prospects for global FX carry still look bleak.

JPMorgan sees EUR/USD below parity in Q1 2025 nL2N3MW08X

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(Richard Pace is a Reuters market analyst. The views expressed are his own)

((Richard.Pace@thomsonreuters.com))