The US dollar (DX=F, DX-Y.NYB) extended its rebound on Wednesday, adding to gains after the currency was on track for a one-week low following a report from the Washington Post on Monday that suggested President-elect Donald Trump won’t commit to an aggressive tariff plan.
But just two days later, CNN reported Trump could declare a national economic emergency to enact universal tariffs, pushing the dollar even higher as equities faltered.
The US dollar “is priced to perfection,” Bank of America’s global rates and currencies research team, led by FX analyst Athanasios Vamvakidis, wrote in a note published on Wednesday. “The USD has rallied strongly since the US election, from an already high level.”
After hitting a September low, the US Dollar Index — which measures the value of the dollar relative to a basket of six foreign currencies that includes the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc — has rallied nearly 9%. Since the election, it’s climbed over 5%.
“In real effective terms, our estimates suggest that the USD ended 2024 at a 55-year high,” Vamvakidis said. “This has been the longest USD uptrend in recent decades, which started in mid-2011.”
As of 2:32:51 p.m. EST. Market Open.
DX-Y.NYB ^GSPC
The currency’s price action has largely been driven by two main catalysts: Trump’s election and the subsequent Republican sweep, along with the recalibration of future Fed easing in the face of strong economic data.
“American exceptionalism in terms of better economic growth, faster productivity growth, superior equity market performance, and higher yields all act as a collective magnet for attracting capital to the United States,” wrote Blake Millard, director of investments at Sandbox Financial Partners.
Even data that’s often viewed as not so good, like sticky pricing pressures, can be positive for the dollar.
The latest example: Manufacturing data released on Tuesday showed prices paid in the services sector during the month of December jumped to a nearly two-year high, suggesting the inflation fight is not yet finished.
Traders scaled back rate cut bets as a result, placing a less than 50% chance the central bank cuts rates ahead of its June meeting, per the CME FedWatch Tool. That possibility spooked markets with all three major indexes closing firmly lower. The dollar, though, instantly rebounded to end the session higher.
“With the Federal Reserve expected to cut rates less than most other major central banks, expected interest rate differentials favor the greenback,” Millard wrote. “Also, tariffs will restrict the flow of goods leading to fewer dollars going abroad and reducing the demand for foreign currency.”