Standard Chartered (OTC:) released a report forecasting the performance of the US dollar (USD) in the near future.
According to their analysis, while a period of weakness is anticipated early in 2025 due to Federal Reserve rate cuts and policy uncertainty, the USD is expected to strengthen overall in the year.
The financial institution pointed out that the surge in interest rates and the USD since October 2024 could pose challenges to economic growth in the following months. The fiscal year 2025 began on October 1 with no advancement on the budget, and Standard Chartered considers a fiscal year 2026 target for fiscal measures through reconciliation to be more realistic.
Standard Chartered expressed skepticism regarding the effectiveness of tariffs in promoting growth, particularly in the short term. These economic headwinds lead the firm to believe that the Federal Reserve will reduce rates more rapidly than what is currently anticipated by the market.
The report also mentioned that once the specifics of fiscal and tariff measures under the Trump administration’s second term are defined, the USD is expected to resume its upward trajectory.
The firm anticipates that long-term USD strength will likely be influenced by productivity and structural factors rather than short-term macroeconomic stimulus, although a temporary phase of USD strength is possible as the market assesses the long-term effects of stimulus measures and their sustainability.
In the global context, Standard Chartered noted that increased demand in the US might have a marginal or even negative spillover effect on the rest of the world. Moreover, higher US interest rates could fully impact countries that do not require policy tightening, potentially leading to negative growth implications abroad.
Consequently, investors may anticipate significant widening of rate differentials against countries with already dim growth prospects, which could pressure their currencies.
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