USD: How high can it go?

Forex
Charu Chanana

Chief Investment Strategist

The US dollar has climbed to multi-month highs again even as the Fed is on an easing path, benefiting from a variety of supporting factors that continue to propel its strength.

Key Drivers for USD Strength

  • Trump 2.0 Tariffs Policy: The administration’s renewed focus on tariffs could weigh heavily on currencies of trade-exposed economies, particularly those in Asia and the Eurozone. The appointment of China hawks to the cabinet is spelling a clear near-term focus on trade and tariff policy, which is USD-positive. The Chinese yuan (CNH), euro (EUR), Mexican peso (MXN), and Australian dollar (AUD) are among the most vulnerable to this trade pressure, as these regions face heightened risks from tariff wars.
  • Trump 2.0 Fiscal Policy: The fiscal push, including tax cuts and deregulation, is likely to support US growth, which could drive yields higher. Rising yields, particularly in the US, increase the relative appeal of the USD against lower-yielding currencies, further boosting demand for the dollar.
  • Fed Easing from Strength: While the Fed is cutting rates, it is doing so from a position of economic strength, with the US economy continuing to show resilience. This strength provides a solid foundation for the dollar, as markets see the Fed’s actions as a proactive measure rather than a response to economic weakness.
  • US Exceptionalism: The continued political and economic challenges facing other major global players, particularly Europe and Japan, further bolster the USD. In Europe, political instability—especially in Germany where a ‘snap’ election will now be held next February – is adding to the economic malaise. Meanwhile, Japan’s delay in raising rates leaves the yen in a precarious position.
  • Geopolitical Risks: Geopolitical tensions, particularly in the Middle East, have the potential to flare up at any moment, further supporting the dollar’s safe-haven status. In times of heightened global uncertainty, investors typically flock to the USD, increasing its demand.

Room for USD to Run

Given these factors, the USD still has room to run. With the ongoing pressures on trade-exposed currencies, the US dollar is likely to remain a dominant force in global markets.

Most Exposed

  • EUR: Political instability in Europe, combined with an already fragile economic recovery and the looming threat of tariffs, leaves the euro vulnerable.
  • CNH (Chinese yuan) and China-proxies like AUD: As the US-China trade war intensifies, the yuan faces increasing pressure, especially with China’s policy stance favoring further stimulus.
  • JPY: Carry trades could gain interest once again with Fed’s easing stance likely to be more cautious and BOJ’s hesitant on rate hikes under the new government. .
  • Commodities: Commodities are facing a double whammy—downward pressure on demand due to escalating trade frictions and a stronger US dollar. As tariffs hit global supply chains and trade volumes, the demand outlook for key commodities, such as industrial metals and oil, weakens. Additionally, a higher USD often makes commodities more expensive for holders of other currencies, further dampening global demand.

Least Exposed

  • GBP: Sterling is less exposed to tariff-risks and an inflationary budget could slow down the pace of BOE rate cuts.

 

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.