The Financial Markets Got It Wrong Predicting a US Dollar Decline in 2024

As 2024 started many investors, experts and analysts predicted that the US Dollar would decline. However, the greenback, thanks to a very hot US economy, and an inflation problem ensuring the Federal Reserve will not cut interest rates for the time being, means a strong dollar has returned and does not look like it is going away. Furthermore the IMF (International Monetary Fund) has predicted that growth in the United States will grow at a rate of two times that of the remaining members of the Group of Seven, and with geopolitical tensions at a height not seen for decades, the US Dollar is still viewed as the ultimate safe haven.

Many economists and other analysts are predicting that the US Dollar will continue to grow, with one well-known bank suggesting the dollar will continue to increase in value through 2025. The resurgence of the dollar has come on the back of many financial signals pointing to the US economy sidestepping a much anticipated slowdown, with manufacturing continuing to grow and the labour market remaining tight, plus as already mentioned, the forecast of interest rate cuts being put back due to inflationary problems. 

The financial markets have scaled back their bets on an early cut in US interest rates which has resulted in soaring benchmark treasury yields hitting a figure of nearly 5% which has been a major factor in the US Dollar’s appeal. The dollar has also been further driven by the demand for AI (Artificial Intelligence) resulting in massive inflows into the relevant US Stocks. One senior asset manager has been quoted as saying “The dollar is such a high yielder, if you are a global allocator and running your portfolio, what a slam dunk to improve your risk-adjusted returns: buy shorter-term US debt, unhedged.

The US Dollar during times of financial and or political instability is still recognised as the ultimate investor sanctuary, and as such with the current geopolitical turmoil investors have been seeking refuge in the greenback. This was proved last Friday 19th April, where there was a surge of US Dollar buying following Israel’s retaliatory strike on Iran. Indeed, experts suggest that whilst there has been a surge in US Dollars due to geopolitical risks, its strength will probably last well beyond the current conflict. Analysts also advise that high treasury yields coupled with American energy independence will more than likely continue to retain the greenbacks appeal to the financial markets and investors alike.