The dollar strengthened on Tuesday, capping its biggest annual advance in almost a decadeas the strong US economy and the president-elect’s tax and tariff cutting policies, Donald Trumpthey promise to maintain high interest rates.
The rise took the Bloomberg Dollar Spot index to its highest level since November 2022. It is up almost a 8% this yearthe highest since 2015, after the surprisingly resilient expansion led traders to lower expectations about how much the Federal Reserve will ease monetary policy.
Analysts have indicated the dollar’s rally has room to continue early next year after Fed bankers signaled caution about further interest rate cuts, distancing themselves from other central banks expected to cut. rates faster. That has given investors an incentive to move cash to the US, which has driven up the currency.
The dollar advanced against its major peers in 2024, being the New Zealand dollar, the Norwegian krone and the Japanese yen weakened the most against the US currency.
“Many of Trump’s initial policies will be bullish for the dollar in early 2025,” said Jayati Bharadwaj, currency strategist at TD Securities. “In the second half of next year, we expect the Fed to resume easing, which may provide a pivot for dollar strength, especially if other central banks are already on pause.”
A group of market players — including hedge funds and asset managers — have increased aggregate bets on the dollar’s rise to about $29.8 billion, according to data compiled by Bloomberg. This is the most bullish positioning towards the US currency since April.
Still, there are some doubts about how much further the dollar can rise, given the magnitude of its gains and the fact that the slowdown in interest rate cuts is already widely priced in by the market.
“We are moderately bullish on the greenback,” said Sarah Ying, head of currency strategy at CIBC Capital Markets in Toronto. “Most of the Fed’s path is already priced in and we suspect that dollar momentum should lose some steam in the second quarter.”
(Bloomberg)
