“So bringing it all together we think 2024 will be a year in which currencies and the rest of the world can breathe after being dominated by the strong dollar trend for so long,” Chris Turner, Global Head of Markets, said in an attached video. But a coming US recession will force the Federal Reserve to slash rates by 150 basis points in 2024’s second quarter, the analysts predict, jump starting the “dollar’s long goodbye.” “Over the 12 months ended June, foreign investors have scooped up $451 billion of long-term Treasuries, another $318 billion of US corporate bonds, and $168 billion of equities,” Yardeni explained. There has been a surge in volatility Supernational bond seen in the yen amid a surprise interest rate hike from the Bank of Japan and a subsequent carry trade unwind.
Since around August, a powerful bull trend sent the greenback into upswing, and the currency registered a 4.9% quarter-on-quarter growth rate, annualized in the third quarter. Holding the dollar has become a no-brainer trade, ING said, as high US interest rates and elevated Treasury yields have acted as a magnet for capital inflows. “It feels like a wrestling match and the dollar will not roll over that easily,” they said. Foreign investors still can’t get enough of US debt, as it still offers sizable yields on essentially risk-free investments. Foreigners convert their currency into dollars to buy Treasurys, leading to even more demand for the dollar.
Japanese Yen drops to fresh daily low; USD/JPY approaches 155.00 ahead of US PMIs
Even in the run-up to tariffs—before they are even implemented—there could be adverse fallout for global markets. Currently, Brazil is the largest food exporter to China by a substantial margin (Figure 7). If China decides to try to head off tariffs by buying more agricultural products from the U.S., this could amount to a negative shock for Brazil as it scrambles to place its products elsewhere.
The Chinese yuan has slumped by 2.6% in that time to hit its lowest level against the dollar in 16 years. “Rumors of the US dollar’s demise continue to be greatly exaggerated,” James Athey, investment director at Abrdn, an asset manager, told CNN. 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.
- US Federal Reserve Chair Jerome Powell’s signal of imminent interest rate cuts last week has prompted global investors to position for an easing cycle, sending the US dollar lower.
- Morgan Stanley Research analysis suggests that Trump’s reelection would bring uncertainty in trade policy and geopolitics that would support the dollar.
- The People’s Bank of China has cut key interest rates on mortgages and on its lending to banks in recent months to help boost demand for credit.
- A strong US dollar has big implications for how money and stock prices move around the world.
- This will be the last official jobs data investors see before February’s heavily anticipated unemployment report next Friday.
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. That said, Morgan Stanley Research continues to see the risk for a wholesale shift hot penny stocks today’s best cheap stocks in monetary policy as overstated, given that changes in the Fed’s scope and authority face many hurdles.
It’s not necessarily bad for other economies because if you have a weaker currency, that should help your exports, and that’s the way the global economy re-balances. However, the strong dollar is not an exogenous shock, it read our guide to find the best forex learning book today is an endogenous reaction of the market to the fact that the US is doing better than the rest. “As the impact of Hurricane Beryl on economic indicators fades, we expect the Citigroup Economic Surprise Index to rebound in the coming weeks. That should support long-term bond yields, boosting the dollar,” Yardeni explained. The US dollar has weakened in recent weeks as interest rates dropped due to prospects of significant interest rate cuts by the end of the year. But Yardeni believes the market got ahead of itself when it comes to interest rate cuts, and if that’s the case, the US dollar should strengthen.
EUR/USD treads water just above 1.0400 post-US data
“It would certainly undermine the role of the dollar as a reserve currency that is used in transactions all over the world. And Americans — many people — would lose their jobs and certainly their borrowing costs would rise,” Treasury Secretary Janet Yellen told CNN in January. The greenback — which is not just the dominant global currency but also “the key variable affecting global economic conditions,” according to the New York Federal Reserve — reached a 20-year high last year after the Fed turned hawkish with its aggressive rate hikes. The measurement needed to determine whether a cyclone can be classified a bomb cyclone can be tricky, but it largely concerns a swift drop in pressure.
The same is true for the European Union where transportation equipment is concerned. The EU is currently by far the largest exporter of motor vehicles, aircraft, trains, and ships to China (Figure 8). This could turn into a liability if China starts ordering more Boeing aircraft instead of Airbus, for example. In short, a second, more pronounced phase of dollar strength may start once the president-elect is in office and the likelihood of tariffs rises. We compare the rise in the S&P 500 in the days following November 5 to what happened in 2016 (Figure 1). The Russian ruble, perhaps surprisingly, has been one of the best-performing currencies against the dollar this year.
US shares and Bitcoin hit record highs on Trump win
Analysts also acknowledged that challenges do exist to this outlook, such as stubborn inflation, Middle Eastern geopolitical escalations, or the re-election of President Donald Trump, who has voiced plans for anti-China policy. The Brookings Institution is a nonprofit organization based in Washington, D.C. Our mission is to conduct in-depth, nonpartisan research to improve policy and governance at local, national, and global levels. “The strength of the US dollar has been a key feature of the post-pandemic bull market,” Yardeni wrote. Analysts at Bank of America estimated that more than half the rise in the dollar this year could be explained by the Fed’s comparatively aggressive policy alone.
Latest US Dollar Index News
A so-called “soft landing” — that is, when a central bank successfully lowers inflation without tipping the economy into recession — now looks increasingly likely. “This is a typical story in the currency market, with the Fed at the forefront of the monetary cycle, which initially forms months of dollar growth on rate hikes, but then triggers a move in the opposite direction,” the analyst said. “In the last six months, we have seen the quite typical and understandable reversal of the dollar.” For countries that depend on commodity imports, a weaker dollar means they have to pay less for essentials like wheat and crude oil. “I can see two more quarters of US dollar weakness, particularly if it becomes even more clear that the Fed is going to cut interest rates,” Ulrich Leuchtmann, head of foreign exchange research at Commerzbank, told CNN. I don’t think you’re going to have a weakening of the dollar until you have more convergence in growth or in monetary policy.
Goldman Sachs’ analysts acknowledged there are political risks for the greenback — but they don’t think the impact would hit the dollar’s resilience. 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. This fundamental information helps me understand what reports and indicators the economists of the world believe will shape future events. The US Dollar Index has seen four losing weeks out of the last five, and the greenback could face more declines in the months ahead. A fall in the greenback’s value also signals better investment opportunities outside the United States, McCormick told CNN.
