Investing.com – The dollar has moved above its post-2022 range on the back of the U.S. economic emergency, widening interest rate gap and increased tariffs, setting the stage for further gains next year.
“Our base case is that the dollar will continue to appreciate next year as the United States continues to outperform, the interest rate gap between the U.S. and other G10 economies widens somewhat, and the Trump administration introduces higher tariffs in the US,” Capital Ekonomia said in a recent note.
The bullish outlook for the dollar comes after the dollar breaks above its post-2022 trading range, reflecting renewed confidence among investors on solid U.S. economic data and political expectations.
A key risk to calls for a bullish dollar is a potential economic rebound in the rest of the world similar to what occurred in 2016, Capital Economics noted.
After the 2016 US elections, economic activity in the rest of the world rebounded, while the Trump tax cuts did not materialize until tardy 2017 and the Fed took a more dovish rather than discounted path, leading to a 10% decline in DXY this year, which was “the worst result in a calendar year in two decades,” he added.
While recovery expectations in Europe and Asia seem distant, “a positive surprise for global growth must be ruled out,” Capital Economics said.
