Wall Street sees US dollar’s rally staying strong next year
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The US dollar is on a tear, and Wall Street expects the rally to keep going. After climbing 6.1% since October, the dollar is having its strongest quarter since the Federal Reserve’s interest rate hikes in 2022. Traders are eyeing further gains next year, despite President-elect Donald Trump’s push for a weaker currency. The dollar has strengthened from $1.11 against the euro in early October to below $1.05. Deutsche Bank forecasts parity—$1 to €1—by 2025. More than half of major banks surveyed, including Goldman Sachs, UBS, and Morgan Stanley, predict the greenback will remain robust. Trump’s hopes for a weaker dollar to help US exporters? Not likely, analysts say. Trump’s policies may fuel dollar strength Trump has repeatedly called the dollar’s strength a “big problem” for American companies. In July, he said, “That’s a tremendous burden on our companies that try and sell tractors and other things to other places outside of this country.” During his first term, he even labeled China a “currency manipulator” amid trade tensions. Despite this rhetoric, analysts believe Trump’s pro-growth policies will only strengthen the currency. Trump’s plans for import tariffs, tax cuts, and an inflationary boost to domestic demand are seen as dollar-positive. Higher inflation could force the Fed to keep interest rates elevated, attracting foreign capital into dollar assets. Barclays expects the dollar to inch up to $1.04 against the euro by the end of next year. Global dynamics limit Trump’s control over the US dollar Despite Trump’s desire to devalue the dollar, the mechanics are complicated. Analysts rule out a “Plaza Accord” repeat—similar to the 1985 deal when countries intervened to weaken the dollar. Mark Sobel, a former US Treasury official, says support for a so-called “Mar-a-Lago Accord” is unrealistic. “Perceptions about US leverage over China are woefully exaggerated,” he explained. Beijing…
Filed under: News - @ December 17, 2024 9:21 am