The US dollar is at a crossroads CNN Business

As we progress into 2024, the interplay of these factors will continue to drive the narrative around the dollar’s strength and stability in the global economy. A strong dollar can hurt international company performance for U.S.-based investors. It can also negatively impact U.S. companies with significant international exposure and U.S. exports by making goods more expensive abroad. Exceptionalism’ narrative in 2025, investors should carefully assess its potential impact on their portfolios. Regardless of the outcome of the November election, investors should prepare for plenty of volatility ahead in foreign exchange markets. Wall Street, BofA analysts say, has tended to focus on the pro-growth potential of said policies.

US Dollar closes a losing week after economic data

• With those issues in the rearview mirror, the US economy should bounce back, adding yet another catalyst for the dollar to gain.
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• “Even if tariffs are delayed, they are likely to be a key policy pillar for the new administration,” wrote Adarsh Sinha, lead FX and rates strategist at BofA.
• A record debt pile and rising rates have increased the federal government’s annual interest payments, which exceeded $1 trillion or more than its entire military budget last year, he noted.
• Rogoff said the impact of Trump’s planned tariffs on interest rates and global exchange rates is likely baked into markets already, but how other countries retaliate is not.
• Analysts expect the dollar to maintain its strength in the first half of 2025 as the U.S. economy continues to outpace its peers and many economists’ expectations.

Despite these shifts, the dollar’s dominant position as a reserve currency has not seen substantial change. Its role in global financial markets and transactional purposes remains significant, further solidifying its position. For a detailed analysis, you can refer to Charles Schwab’s Insights on Dollar’s Reserve Status. The rally comes after months of volatility, fueled by concerns that the dollar may be losing its status as the world’s reserve currency. Speculation about the potential de-dollarization of global trade rose again last month after the Chinese-led expansion of the BRICS group of nations to include major oil producers, such as Saudi Arabia. From the Federal Reserve’s monetary policies to global economic indicators and geopolitical shifts, each plays a significant role in shaping the dollar’s future.

Strong demand

• However, once that volatility subsides and the yen stabilizes, the US dollar should benefit, according to Yardeni, who sees a potential catalyst for this on Friday.
• Instead, Trump issued a memorandum on Monday directing federal agencies to evaluate US trade policy, which could eventually lead to blanket tariffs across a variety of trading partners down the line.
• When I write the Online Trading Academy Forex newsletter, I give my opinion about what I believe is happening to the currencies of the world based on the news I hear, the experts I follow, and my personal experiences of the economic cycles I have seen in the past.
• “A stronger dollar is likely to add to a recurring phenomenon into earnings season — an increase in dispersion of earnings per share (EPS) revisions,” Morgan Stanley analyst Mike Wilson wrote in a note to clients last week.
• “That’s going to undermine the dollar” as it did in the 1970s, he predicted, as there’s “potential for a lot of instability” stemming from America’s debt pile.
• How changes in fiscal, trade and monetary policy resulting from the U.S. election could move the dollar.

The U.S. dollar’s role as a safe-haven asset in recession scenarios underscores its resilience and the complexity of its response to global economic trends and Federal Reserve policies. While US consumers may benefit from a stronger dollar via increased purchasing power, international companies typically see suppressed profits as they convert their foreign earnings derived from different currencies into fewer US dollars. Even with the factors supporting the dollar, its ascent is unlikely to continue indefinitely. Currently, the dollar is two standard deviations above its 50-year average, suggesting limited room for further appreciation. Historically, the dollar has alternated between periods of strength and weakness, making a downturn likely at some point, though the timing is uncertain. Additionally, the U.S.’s persistent trade balance deficit, at 4.2% of GDP as of September 2024, poses a long-term constraint, highlighting a structural challenge that could eventually pressure the currency.

reasons the strength of the US dollar is here to stay through end of the decade

Foreigners convert their currency into dollars to buy Treasurys, leading to Support resistance indicators even more demand for the dollar. In a Monday note, Yardeni offered five reasons he expects the US dollar to extend its long-term uptrend since it bottomed at around $75 in 2011 based on the US Dollar Index, which measures the dollar against a basket of global currencies. The Fed is a quasi-independent government agency, but the central bank’s chair and board are selected by the president and confirmed by the Senate.

Trump’s tariff proposals, tax policies, deregulation plans, and promise of mass deportations all have the potential to spur inflation, either by stimulating growth or raising costs for businesses, which could require rate cuts. The dollar has soared to its highest level in decades in recent months and is expected to remain strong well into this year. A weaker euro will likely push up the price of imports, in turn, fueling inflation. Adding to the upward pressure are crude oil prices, which have climbed in recent weeks as Saudi Arabia and Russia have extended supply curbs.

Investment Approach

With Chair Jay Powell’s term up in January 2026, the winners of the next election will determine the Fed’s next leader. By contrast, a Harris victory is expected to bring policy continuity from the Biden administration, under which uncertainty on fiscal and tax policy has appeared to correlate to mild dollar weakness. Meanwhile, Harris is expected to seek less fiscal expansion than Trump, which would bring less growth and in turn weigh on the dollar.

In order to meet the operating costs of this website, we may receive compensation when you click links on our site. In times of economic uncertainty, the U.S. dollar often becomes a safe-haven asset. As we enter 2024, the global economy presents a complex landscape, significantly influencing the U.S. dollar’s position. There have been some hiccups in the US economy in recent weeks, mostly sparked by a weak July jobs report and a rising unemployment rate. There has been a surge in volatility seen in the yen amid a surprise interest rate hike from the Bank of Japan and a subsequent carry trade unwind. A strong US dollar has big implications for how money and stock prices move around the world.

The greenback rose in the months following Trump’s surprise 2016 victory over Democrat Hillary Clinton and rose roughly 3% from the time of the 2016 election to the onset of the COVID-19 pandemic. The value of the dollar surged in the final three months of the year, as Wall Street tempered its expectations for interest-rate cuts following a slew of strong bond prices rates and yields 2020 economic reports. Bank of America (BofA) Securities analysts estimate the dollar’s inflation-adjusted exchange rate, or real effective exchange rate, climbed to a 55-year high at the end of 2024. The US Dollar Index, which now stands at its highest level in six months, has been buoyed by a slew of positive economic data from the United States in recent weeks — fueling expectations that the Federal Reserve will keep interest rates higher for longer. Higher interest rates tend to boost the value of a country’s currency by attracting more foreign capital, as investors anticipate making bigger returns.

Ultimately, the resilience and adaptability of the dollar amidst these challenges will be a testament to its enduring role in the world’s financial system. With those issues in the rearview mirror, the US economy should bounce back, adding yet another catalyst for the dollar to gain. The US dollar will surge through 2030, according to market veteran Ed Yardeni, who says the growing narrative of de-dollarization is overblown.

Gold prices maintain the bid tone near their record top at the end of the week, helped by the intense weakness around the US Dollar, alleviating concerns surrounding Trump’s tariff narrarive, and a somewhat more flexible stance towards China. Europe’s official statistics agency Thursday revised down its estimate of GDP growth for the 20 countries sharing the euro from 0.3% to 0.1% for the cloudability saas second quarter of this year. “Ultimately, it’s going to be a race between the realities of what President Trump inherits and the extent to which certain policies could make things more complicated, like tariffs,” he said. “The message is this is not a one-day event,” he said, noting both upside and downside risks exist. The company also reported $9.37 billion in revenue and earnings per share of $5.28 for the first quarter, beating Wall Street’s estimates, according to FactSet.

That could potentially lead to a disastrous downgrade to America’s credit rating and could send the dollar spiraling as investors start to sell off their US assets and move their money to safer currencies. And around 30% of all S&P 500 companies’ revenue is earned in markets outside the US, said Quincy Krosby, chief global strategist for LPL Financial. In conclusion, while the question of whether the U.S. dollar will collapse in 2024 remains open to debate, the factors influencing its fate are multifaceted. The looming specter of an economic crisis in 2024 could have a significant impact on the U.S. dollar. These are the five reasons Yardeni expects the US dollar to strengthen through the rest of this decade.

Week Ahead – Fed, BoC and ECB meet amid Trump tariff threats

The Fed has “less of a reason to cut rates aggressively next year,” Brzeski said, adding that a comparatively weak economic performance by Europe leaves “very little room for the European Central Bank to continue hiking” its main lending rate. That should give American consumers the confidence to carry on spending — and the US Federal Reserve greater incentive to keep interest rates stuck at a 22-year high in an attempt to cool inflation. “The US economy continues to demonstrate remarkable strength, while matters in China and Europe, in particular, seem to be descending into a much more recessionary place,” Athey added.