Standard Chartered (OTC:) has released a report predicting the performance of the United States Dollar (USD) in the near future.
According to their analysis, the USD is expected to strengthen overall over the course of the year, although a period of weakness is expected in early 2025 due to Federal Reserve rate cuts and policy uncertainty.
The financial institution pointed out that the rise in interest rates and the USD since October 2024 could pose a challenge to economic growth in the following months. Fiscal year 2025 began on October 1 with no progress on the budget, and Standard Chartered considers a fiscal year 2026 target for fiscal action through reconciliation to be more realistic.
Standard Chartered expressed skepticism about the effectiveness of tariffs in promoting growth, especially in the short term. These economic headwinds lead the company to believe that the Federal Reserve will cut interest rates faster than currently expected by the market.
The report also stated that once the specifics of the fiscal and tariff measures under the Trump administration’s second term are defined, the USD is expected to resume its upward trajectory.
The company expects that long-term USD strength is likely to be influenced by productivity and structural factors rather than near-term macroeconomic stimulus, although a temporary phase of USD strength is possible as the market recovers assesses long-term effects of stimulus measures and their sustainability. .
In the global context, Standard Chartered noted that increased demand in the US could have a marginal or even negative spillover effect on the rest of the world. Moreover, higher US interest rates could have a full impact on countries that do not require policy tightening, potentially leading to negative consequences for growth abroad.
As a result, investors can anticipate a significant increase in interest rate differentials against countries with already poor growth prospects, which could put pressure on their currencies.
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