The US Dollar Index has strengthened by 2.8% so far this year, as of Friday morning. Despite slipping last November and finishing the year lower against a basket of currencies, investors had hoped that the Federal Reserve would soon cut interest rates. However, Fed Chair Jerome Powell stated in January that interest rate cuts are unlikely to begin in March, contrary to what investors had widely believed.
Recent economic data has shown that the economy is performing well and that the Federal Reserve may keep interest rates higher for longer. The labor market has been resilient despite elevated rates, with an eye-popping 353,000 jobs added in January alone. Additionally, while the Consumer Price Index rose 3.4% annually in December, it still fell short of the central bank’s 2% target.
A stronger dollar is generally bad news for American companies but can benefit US consumers who spend less on imported goods and have more purchasing power when traveling abroad. The greenback has strengthened again after a volatile 2023 as Wall Street now accepts that interest rate cuts will come later than previously expected, leading to a rise in the US Dollar Index, which tracks the dollar against several currencies including the British pound, euro, Swiss franc, Japanese yen, Canadian dollar and Swedish krona.