US Dollar Index Forecast for 2024!

US Dollar Index Forecast for 2024!

In 2023, we saw that the US Dollar index was very much influenced by the Federal Reserve’s Monetary policy and steadiness in maintaining interest rates across the three policy meetings. As far as the forecast goes, potential rate cuts can be seen in the future, with inflation reversal being the focus.

The strength of the US dollar in 2023 was mainly dependent on global economic fluctuations. With the shifting trade dynamics of key trading partners, the economy seemed to slow down. This led to increased demand for the US dollar as a safe currency, even if there were uncertainties in global markets. 

If you closely analyze the DXY chart for the last year, it was mostly rangebound at the start of the year. We saw a bullish pattern, and the 200-day moving average was on the solid side early last year. However, as we started finishing the year, we saw DXY crossing to the weak side of the 200-day moving average. This flipped the script entirely, and we saw a bearish pattern at the end of the year.

Economic Outlook for 2024

With sustained private investment and an increase in consumer spending, the US economic market will continue to expand in 2024 as well. With a long run of approximately 18% and the addition of real personal income gains and policy tailwinds from both fiscal and monetary authorities, the growth seems imminent. 

After the post-pandemic recovery and fluctuating inflation, the projected growth seems to be stabilizing. The inflation rates are also rejected to ease to a more manageable range of 25% to 3%. The Federal Reserve’s 2024 policy outlook indicates four 25 basis-point reductions starting in June, and other significant rate cuts will bring the federal funds rate from 4.25% to 4.5%  by the end of the year.

A slight uptick in unemployment can be seen. Thus, robust employment combined with falling inflation can sustain the economic expansion in American history.

Currency Market Trends In 2024

The currency market trends in 2024 are anticipated to be significantly impacted by the changing movements of US dollars in relation to major and developing market currencies. Due to unstable economic and geopolitical conditions, it is said that the dollar index, which measures the strength of the dollar among currencies like the British pound, the Euro, the Japanese Yen, and others, is going to see significant price fluctuation. 

The US Dollar index dropped to about 100.00 after the dovish turn and news of lower interest rates. This fluctuation suggested that the strength of the US Dollar has been weakening relative to the currencies in the index.

The US dollar is expected to be strong in 2024 according to Goldman Sachs Research. This prediction is mainly driven by the US economy’s outperformance, which is expected to increase by 2.1% in 2024, exceeding consensus estimates. According to the report, the US receives the majority of cross-border financial flows, which is indicative of the country’s economic strength when measured against China and Europe. 

The world economy will surpass forecasts in 2024, which would strengthen the US dollar even more. A favorable economic outlook is influenced by a thriving job market and declining inflation. Foreign investor interest in US assets and currencies is anticipated to continue as GDP growth is predicted to be 2.6%, more significant than expected. US growth is forecast to surpass peers in developed markets. 

Final Words

In conclusion, the US dollar index, the most significant worldwide currency, can be used to evaluate commodities priced in US dollars, including industrial metals, oil, and gold, in addition to analyzing the foreign exchange market.

However, even while we believe the US currency will stay strong in the short run, we think that as the Fed’s rate reduction gets closer, it will finally weaken. This stance and our preferred foreign exchange strategies are supported by the positions of numerous other significant central banks.

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