Standard Chartered (OTC:) has published a report forecasting the behavior 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 Federal Reserve interest rate cuts and policy uncertainty, the U.S. dollar is expected to strengthen overall this year.
The financial institution noted that a keen escalate in interest rates and the dollar from October 2024 may pose a challenge to economic growth in the following months. Financial year 2025 started on October 1 with no budget progress and Standard Chartered believes that the fiscal year 2026 target for fiscal measures through reconciliation is more realistic.
Standard Chartered expressed skepticism about the effectiveness of tariffs in promoting growth, particularly in the tiny term. These economic difficulties lead the company to believe that the Federal Reserve will cut interest rates faster than the market currently expects.
The report also mentioned that once details of fiscal and tariff measures are finalized under the second term of the Trump administration, the US dollar is expected to return to an upward trajectory.
The company anticipates that long-term USD strength will likely be driven by productivity and structural factors rather than short-term macroeconomic stimulus, although a fleeting phase of USD strength is possible as the market assesses the long-term effects of stimulus measures and their sustainability.
In a global context, Standard Chartered noted that increased demand in the US could have a marginal or even negative impact on the rest of the world. Moreover, higher interest rates in the U.S. could fully impact countries that do not require policy tightening, potentially leading to negative consequences for economic growth abroad.
Therefore, investors can expect a significant escalate in exchange rate differences with countries with already faint growth prospects, which could put pressure on their currencies.
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