[Christian Harris]

The US dollar is closing in on its strongest annual performance in nearly a decade, with 2024 shaping up to be its best year since 2015.

This surge in value reflects a combination of robust economic fundamentals, restrained Federal Reserve rate cuts, and growing market optimism surrounding President-elect Trump’s anticipated trade and tariff policies.

The dollar’s strength has made it a standout in global markets, overshadowing many major currencies that have struggled to keep pace.

A key driver of the dollar’s ascent has been the resilience of the US economy, which has outperformed most advanced economies throughout the year.

With GDP growth beating forecasts and the labour market remaining relatively tight, the Federal Reserve has opted for a cautious approach to monetary easing, implementing only modest rate cuts despite global calls for more aggressive reductions.

This restrained stance has kept US yields attractive to investors, further boosting demand for the greenback.

Meanwhile, the euro is edging dangerously close to parity with the dollar, a level not seen in decades, as the European economy grapples with stagnation and high energy costs.

Among G10 currencies, many have experienced steep declines against the dollar, with some losing over 10% of their value this year.

Emerging market currencies have fared no better, with nations heavily reliant on dollar-denominated debt feeling the pinch of rising borrowing costs.

Looking ahead, analysts warn that the dollar’s dominance could face headwinds in 2025.

While the greenback remains supported by favourable economic conditions and geopolitical uncertainties, any shifts in US trade policy, unexpected Federal Reserve actions, or a global economic rebound could temper its momentum.

For now, however, the dollar continues to shine as a symbol of economic strength and investor confidence.

Chart: Trading Economics

Reply

Topic