Dollar Records Its Best Year in Almost Ten Years -

The US dollar is poised for its best performance in almost a decade, as strong economic conditions in the United States dampen assumptions about a forthcoming rate-cutting cycle from the Federal Reserve. Additionally, President-elect Donald Trump’s proposed substantial tariffs fuel positive expectations for the currency.

This year, the Bloomberg Dollar Spot Index has surged over 7%, representing its strongest performance since 2015. All currencies from developed nations have weakened against the dollar as numerous central banks have been compelled to step in to support their domestic economies.

Skylar Montgomery Koning, a foreign-exchange strategist at Barclays, stated, “The primary element driving the US dollar this year has been the economy’s strength. This strong performance implies the Fed is opting for a gradual cutting cycle, keeping US rates above those in other nations, which aids in maintaining historically high dollar values.”

This month, the dollar index reached its peak in over two years following the Fed’s interest rate cut, while indicating a cautious approach to monetary easing. Meanwhile, investment activity on Wall Street points to the potential for further dollar increases in 2025, as anticipated global economic growth later this year could strengthen other currencies but also exert pressure on the dollar.

As of December 27, the yen, Norwegian krone, and New Zealand dollar have fared the worst among the Group of 10, each dropping more than 10% against the dollar. The euro has weakened by about 5.5%, trading near $1.04, with a growing number of strategists highlighting the risk of the euro reaching parity with the dollar next year.

On Friday, the Bloomberg Dollar Spot Index experienced a slight uptick, finishing a fourth consecutive week of gains as it rose in tandem with long-term Treasury yields, while traders evaluate the Fed’s monetary approach and the incoming Trump administration’s policies.

Speculative traders, excluding commercial interests, have consistently bolstered their bullish positions on the dollar leading up to and after the US election. They currently hold around $28.2 billion in contracts anticipating the dollar’s future rise, the highest level observed since May.

Research analysts at Goldman Sachs, led by Kamakshya Trivedi, noted in a report dated December 20, “The current strength of the dollar is in alignment with incoming data. We think the markets have not fully factored in our tariff expectations, and that the risks to our forecasts still lean upward in the medium term, particularly if enhanced sentiment results in more sustainable US growth despite growing protectionist policies.”

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