Summary
The dollar has strengthened in 2024 as the Federal Reserve has moved away from imminent interest rate cuts, the U.S. economy has grown at a solid pace, and the high level of interest rates has attracted global investors into dollar-denominated securities. The greenback has climbed 2.5% on a trade-weighted basis in 2024 and is 17% above its average value since 2000. Looking ahead, we anticipate a relatively stable trading range for the dollar in 2024, for several reasons. For one, the dollar typically tracks GDP growth trends, and we think the U.S. economic expansion is poised to slow in coming quarters due to the Fed’s rate hikes. We also expect the higher rates to increase the interest payments as a percentage of GDP from recent lows of 1.5%, putting a modest strain on the U.S. balance sheet; the current rate is 2.4%. Finally, the still-elevated valuation of the greenback implies that other currencies — and even gold or other commodities — are possibly undervalued, and we would expect investors such as the petrodollar-fueled sovereign wealth funds to bid up those values at a measured pa
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