Will 2024 be the year of the dollar dive?

The dollar will likely consistently weaken next year as the Federal Reserve ends its aggressive interest rate hiking agenda.

According to reports, asset managers are selling the greenback at the fastest pace in a year.

So, the Big Dollar Sell-Off is go.

As I was quoted by Yahoo FinanceNewsmaxAdvisorpediaMena FNBusiness InsiderInvestor IdeasUS TodayThe Exchange AfricaOman Observer, and Emerging Markets, among other media, we forecast this trend will gain momentum during 2024 as investors increasingly believe the Fed’s current rate hiking campaign is easing.

Weak end of year for the dollar

The dollar typically performs well at the beginning of the year. However, is likely to weaken during the course of 2024 as the US central bank eases its hold on rates.

The Fed will implement several rate cuts next year, as the fight against inflation is being won. This will make investors believe holding so much US currency may not be as necessary.

The expectation is that reduced interest rates will lower the appeal of dollar-denominated assets. As US interest rates fall, the interest rate differential between the dollar and other currencies narrows. Therefore lessening the yield advantage that has attracted investors to the US currency over time.

Moreover, the likelihood of a number of rate cuts by the Federal Reserve is prompting investors to seek higher-yielding assets elsewhere, leading to the accelerated exit from the dollar.

Alternative investments

Appeal for alternative investments in currencies from regions with more favourable interest rate outlooks increases as the interest rate differentials move in their favour.

The impact of this dollar sell-off extends beyond the US.

A weakened dollar affects global trade. A depreciating currency can bolster US exports but could also lead to tensions with trading partners.

As the burden of servicing this debt eases with a weaker dollar, it will relieve emerging market economies, which typically have substantial levels of dollar-denominated debt.

Therefore, as investors increasingly bet on the Fed slashing rates, 2024 may be known as ‘the year of the dollar dive’.”

Read my previous blog post here.

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