Investing.com — The dollar has rallied past its post-2022 range, buoyed by the exceptional U.S. economic record, a widening interest rate gap and increased rates, paving the way for further gains next year.
“Our base case is that the dollar will make some further gains next year as the US continues to outperform, the interest rate gap between the US and other G10 economies widens slightly and the Trump administration implements higher US rates,” Capital said. Economics writes this in a recent note.
The bullish outlook for the dollar comes in the wake of the dollar rising above its post-2022 trading range, reflecting renewed investor confidence driven by robust US economic data and policy expectations.
A key risk to the dollar’s upside call is a potential economic recovery in the rest of the world, similar to what took place in 2016, Capital Economics noted.
After the 2016 US elections, economic activity in the rest of the world recovered, while Trump’s tax cuts did not materialize until late 2017 and the Fed took a smoother path than discounted, resulting in a 10% decline in the DXY . of the year, which was the “worst calendar year performance in the past two decades”, it added.
While expectations for a recovery in Europe and Asia seem remote, a positive surprise for global growth “must be ruled out,” Capital Economics said.
