Dollar Eyes Best Year in Almost a Decade
(Bloomberg) — The dollar is headed for its best year in nearly a decade as U.S. economic strength curbs expectations of a Federal Reserve rate-cutting cycle and threats of tough tariffs from President-elect Donald Trump underpin bullish bets on the currency.
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The Bloomberg Dollar Spot Index is up more than 7% this year, its best performance since 2015. All developed world currencies have weakened against the dollar as other central banks have been forced to support local economies.
“The main pillar of support for the U.S. dollar this year has been the strength of the economy,” said Skylar Montgomery Conning, foreign exchange strategist at Barclays. interest rates higher than elsewhere, helping to maintain historically high dollar valuations.”
The dollar hit its strongest level in more than two years earlier this month after the Fed cut interest rates but signaled a slowdown in monetary easing.However, as Wall Street bets the dollar has more room to rise in 2025, the global economic growth may improve later in the year, supporting other currencies and weighing on the dollar.
So far in 2024, the yen, Norwegian krone and New Zealand dollar have been the worst performers in the group, each down more than 10% against the dollar as of December 27. The euro has lost about 5.5%, trading near $1. 04 as a growing number of strategists see a risk to the common currency’s dollar parity next year.
The Bloomberg Dollar Spot Index advanced slightly on Friday, capping a fourth week of gains, rising along with long-dated Treasury yields as traders gauged the Fed’s monetary path and future Trump administration policies.
Non-commercial, speculative traders have been steadily pushing bullish bets on the dollar in the run-up to and since the U.S. election.
“The dollar’s current strength is in line with incoming data, we don’t think markets have fully internalized our rate expectations, and risks to our outlook are still rising over the medium term,” Goldman Sachs analysts led by Kamakshya Trivedi wrote on Dec. 20 . “Especially if stronger sentiment translates into more sustained U.S. growth despite more protectionist measures.”
(Update levels, Bloomberg Dollar Index).
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