The dollar rallied to the strongest level in over two years after the Federal Reserve signaled a slow down in the pace of monetary easing next year.
The Bloomberg Dollar Spot Index rose 0.6% Wednesday, its highest since 2022. It advanced almost 7% so far this year, gaining against all of its peers in the developed world and on path to have the best year since 2015.
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President-elect Donald Trump's vows to impose harsh tariffs on many US trading partners have aided the dollar rally in the lead-up to the election. The rally continued as the Fed weighs the pace of interest-rate cuts as the US economy outperforms many other nations. Meanwhile, many central banks around the globe will have to aggressively reduce borrowing costs to aid anemic economic growth.
“As those divergences in monetary policy paths unfold, along with some other factors, we believe the dollar will strengthen considerably over the course of 2025,” said Brendan McKenna, an emerging-markets economist and foreign-exchange strategist at Wells Fargo in New York. Wells Fargo forecasts the greenback gaining some 5% to 6% on average against Group-of-10 peers next year.
Many Wall Street's strategists are forecasting the world's reserve currency will peak as early as mid next year before starting to decline later in 2025 as rate cuts in the rest of the world will start reviving economic growth outside of the US.
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