EURUSD: The fate of the USD depends on the Fed's 2024 movesThe US dollar has been relatively stable this year, having strengthened significantly following the Fed's rate hike in 2022, but could face downward pressure in 2024 if the Fed cuts rates as expected. . The dollar has fallen only 2% against other major currencies this year, its first annual decline since 2020, supported by strong U.S. economic growth and the Federal Reserve's efforts to keep borrowing costs high. Ta.
The Fed's surprising shift in stance came at its December meeting, when Chairman Jerome Powell suggested a sharp rate hike cycle that would send interest rates soaring to multi-decade highs was likely. It ended due to falling inflation. This has led to expectations for a 75 basis point (bp) rate cut next year, with the dollar weakening as lower interest rates generally make U.S. assets less attractive to profit-seeking investors. There is a possibility that Strategists are expecting a weaker dollar next year, but the possibility of an earlier rate cut could accelerate the dollar's weakness. But the strong U.S. economy could pose a challenge for those betting on the dollar. Kit Jacks, chief currency strategist at Société Générale (OTC:SCGLY), said aggressive monetary policy and growth stimulus in the US led to strong dollar strength. La, just like in the 1980s. Impending policy changes could eliminate some of these gains. The development of the dollar is particularly important given its central role in global finance. A weaker dollar could benefit the United States by making exports more competitive and increasing multinational corporations' profits when converting foreign earnings into dollars. According to FactSet, about a quarter of S&P 500 companies (INDEXSP: INX companies) derive more than half of their revenue from international markets.
A December survey of 71 foreign exchange strategists predicted the dollar would weaken against G10 currencies in 2024, with most of the decline occurring in the second half of this year. The outcome will likely depend on the relative performance of the US economy and the speed with which central banks around the world adjust their policies. The European Central Bank is resisting pressure to cut interest rates to fight inflation as the euro zone struggles with a deepening economic downturn. The euro has appreciated more than 3% against the dollar this year. In contrast, Neuberger Berman's Thanos Baldas remains bullish on the dollar over the next 12 months, citing continued weakness in economies outside the United States.
