The US dollar is on track to achieve its best performance in nearly a decade, as robust US economic growth diminishes expectations for aggressive Federal Reserve rate cuts and President-elect Donald Trump’s threats of significant tariffs support bullish sentiment toward the currency.
The Bloomberg Dollar Spot Index has risen over 7% this year, marking its strongest performance since 2015. All major developed currencies have weakened against the dollar as central banks around the world struggle to bolster their own economies.
According to Skylar Montgomery Koning, a foreign-exchange strategist at Barclays, the US dollar’s strength is primarily driven by the country’s economic resilience. This strength has led to expectations of a gradual rate-cutting cycle by the Fed, leaving US rates higher than in other economies, which supports elevated dollar valuations.
The dollar index hit its highest level in more than two years earlier this month, following a Fed rate cut and a signal that the pace of monetary easing would slow. However, while Wall Street anticipates further gains for the dollar in 2025, the possibility of global economic growth improving later in the year could benefit other currencies, potentially weighing on the dollar.
As of December 27, the Japanese yen, Norwegian krone, and New Zealand dollar were the worst-performing currencies in the Group of 10, each losing over 10% against the US dollar. The euro has fallen by about 5.5%, now trading near $1.04, and some analysts warn that the euro could reach parity with the dollar next year.
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The Bloomberg Dollar Spot Index remained slightly higher on Friday, continuing a four-week streak of gains, driven by rising long-term Treasury yields as traders assess both the Fed’s policy direction and the economic policies of the incoming Trump administration.
Speculative traders have steadily increased their bullish bets on the dollar ahead of and following the US election. As of now, they hold approximately $28.2 billion in contracts anticipating a rise in the dollar, the highest level since May.
Goldman Sachs analysts, led by Kamakshya Trivedi, wrote in a December 20 note that the current dollar strength aligns with incoming economic data. They also pointed out that markets may not have fully priced in expectations for tariffs, with risks to their forecast remaining tilted to the upside over the medium term—especially if stronger economic sentiment leads to sustained US growth despite more protectionist policies.