StanChart Predicts Dollar Strengthening After Weakness at the Start of 2025
Standard Chartered has published a report predicting the performance of the US dollar (USD) in the near future. According to their analysis, while a period of weakness is expected in early 2025 due to the Federal Reserve's interest rate cuts and policy uncertainty, the USD is anticipated to strengthen throughout the year.
The financial institution emphasized that the increase in interest rates and the USD since October 2024 could pose challenges for economic growth in the coming months. The fiscal year 2025 began on October 1 without progress on the budget, and Standard Chartered believes that a target of fiscal measures for fiscal year 2026 through consensus is more realistic.
Standard Chartered expresses skepticism about the effectiveness of tariffs in promoting growth, particularly in the short term. These economic challenges led the firm to believe that the Federal Reserve will cut interest rates faster than the market currently expects.
The report also notes that the USD is likely to return to an upward trend after the details of fiscal and tariff measures are defined during the Trump administration's second term. The firm anticipates that long-term USD strength is more likely to be influenced by efficiency and structural factors rather than short-term macroeconomic stimuli. However, a temporary phase of USD strengthening may be possible while assessing the long-term effects and sustainability of market stimulus measures.
In a global context, Standard Chartered pointed out that rising demand in the US could have a marginal or even negative spillover effect on the rest of the world. Additionally, higher US interest rates could significantly affect countries that do not require policy tightening, leading to adverse growth effects abroad.
As a result, investors may expect significant widening of interest rate differentials against countries with currently weak growth prospects, which could exert pressure on the currencies of those countries.