Investors who thought that the rising U.S. debt would decrease the country’s currency missed out on the rally. The ETFs tracking the USD include the Invesco DB US Dollar Index (UUP) and the US dollar index (DXY). Why are they trading new the year’s high?
The U.S. dollar traded higher for eight straight weeks ending November 24, 2024. This happened only eight times since 1967, according to Tradingview. DXY stock peaked at around $107 before closing at $105.78 on November 29.
Stock markets are pricing in a stronger USD in 2025 as Trump takes office. Tariffs and a tough stance on global trade would favor U.S. firms. This would increase demand for the currency. Since the U.S. election in November, gold pulled back while Bitcoin (BTC-USD) traded higher.
China’s Yuan and the Euro fell. Since September, high inflation and strong jobs in the U.S. stoked fears of the Fed holding interest rates.
High interest rates increase the attractiveness of U.S. debt and the U.S. dollar. In a best-case scenario, the Fed will cut rates either this month or in January. It would hold rates after that if the U.S. economy heats up. The Fed must prevent inflation from rising above 2.5 percent. Otherwise, the bank would need to raise rates to sustain price level stability.
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