JPMorgan Chase says the dollar’s strength may continue this year as the company expects the US economy to outperform other developed markets.
In a new report by JP Morgan He says The US dollar has defied gravity in 2024 and could continue to do so amid growing unevenness in global growth.
Bank analysts say a strong US economy could push inflation well above the Fed’s 2% target and force policymakers to pause interest rate cuts.
“The US economy is expected to grow by 2.7% in 2024, exceeding the 1.7% growth forecast for all developed markets.
This is due to superior productivity growth, increased business investment, and fewer labor supply problems compared to other developed markets. Such strong growth, which has helped keep inflation above 2%, may prompt the Fed to halt interest rate cuts sooner than expected. This makes dollar weakness unlikely in the short term.
If the Fed continues to pursue an easing cycle, JPMorgan says interest rate cuts are likely to be minimal this year due to the strong US economy.
“Increasing divergence in global growth has led to greater divergence in central bank policies around the world…and these spreads may remain high, with markets currently pricing in only a limited number of Fed cuts next year. [amounting to] 44 basis points (bps), compared to 110 basis points for the European Central Bank (ECB) and a 47 basis point interest rate hike in Japan.
JPMorgan also says that policy changes proposed by President-elect Donald Trump could lead to a rise in the US dollar.
“The next administration’s focus on boosting domestic manufacturing, increasing tariffs and liberalizing industries could stimulate business growth and keep interest rates high, supporting the dollar.”
But while the largest US bank is bullish on the dollar, it says the country’s over-reliance on foreign-made products could stifle US dollar growth.
“The persistent US trade deficit, at 4.2% of GDP as of September 2024, represents a long-term constraint, highlighting a structural challenge that could eventually pressure the currency.”
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