The U.S. dollar has experienced its strongest performance in two years, driven by expectations surrounding the incoming Trump administration’s policies.
On Thursday, the greenback surged as analysts anticipated that these policies would stimulate growth and inflation, potentially strengthening the currency in the coming year.
Stricter immigration enforcement and new tariffs on trade partners are expected to increase inflationary pressures and pose long-term economic challenges. However, analysts also believe that business deregulation and a robust dollar will fuel U.S. economic growth in 2024.
While the dollar has appreciated against other currencies, significant uncertainty remains about which specific policies will be implemented and their potential impacts.
The dollar’s rally is further supported by doubts over the Federal Reserve’s ability to execute multiple interest rate cuts next year.
The Fed recently reduced rates by 25 basis points, as expected. However, Fed Chair Jerome Powell indicated that further cuts will depend on further progress in lowering persistently high inflation.
Fed policymakers have raised their inflation projections for 2025 and lowered this year’s interest rate forecast from 100 to 50 basis points.
Money market traders expect a 35 basis point rate cut in 2024, with less than a 50% probability of a second 25 basis point reduction.
The dollar index climbed 0.13% to 108.25, nearing its highest level in two years.
Meanwhile, the euro slipped 0.06% to $1.0398, reaching its lowest point since November 22 at $1.03435.
In cryptocurrency markets, Bitcoin fell 2.78% to $95,688.00.
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