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Is USD Projected To Increase in 2025?

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The US dollar is currently at a decades-high. Questions are rising on what direction the USD will take in 2025. Will the dollar continue to rise, or is a downfall around the corner?

The US dollar has steadily gained strength in the last three months of 2024. It jumped to a 2-year high on the first trading day of 2025. While the euro is down 1.01% to $1.025, its lowest since November 2022, the US index is up 0.77% to 109.7. The US index measures the strength of the US dollar compared to other currencies like the euro, pound, and yen.

The highest the US index has ever reached is 164.72 in February 1985. Historical price charts show that the dollar is currently two standard deviations above its 50-year average. This suggests that there’s a good possibility that the dollar will continue to rise.

The US real effective exchange rate (REER), which measures the dollar’s value relative to other currencies, factoring in adjustments for inflation differentials, is also at all-time highs. Analysts predict the dollar will stabilize by the first quarter of 2025. The best move for an investor is to strategically evaluate their forex trading account and gauge the impact of the dollar’s upward trend on their portfolio.

Faith Based Events

Here are the factors to look out for:

Bigger Expectations of US Economy Growth

The US dollar price increase contributed to the nation’s economic growth. Right now, there are even bigger expectations that the American economy will continue outperforming other developer countries. The US does not have a strong rival that matches its economic growth. Last year’s stock market performance confirms this. The US market outperformed other global markets. The development of AI products was the major contributor to the higher returns of the US stock market. The US economy is projected to grow by 2.5% in 2025, well ahead of the initially forecasted 1.9%. For a third year, the US economy is expected to grow faster than other developed markets.

Higher Interest Rates

Due to the strengthening of its economy, the US dollar rose 7% in 2024. A strong economy means higher inflation. Inflation rates are expected to remain above 2% as the economy grows stronger. While the Fed may have declared two Fed rate cuts in 2024, they will likely raise interest rates in 2025. The US central bank has maintained its stance to exercise more caution in cutting rates as inflation rates rise. Increasing interest rates will serve as a means to attract foreign investors while increasing the purchasing power of Americans.

Pro-Economic Growth Policies by President Trump

General market sentiments tilt towards a positive outlook as analysts expect Trump’s economic policies to boost growth and add more upward price pressures. The Trump-Vance administration aims to boost domestic manufacturing and remove strict regulations on industries that can spur economic advancements in the US. Trump’s tariffs will lower US GDP overseas but promote higher national prosperity. This, in addition to tax cuts, will mostly see the US dollar gaining against other currencies like the euro to the point of parity and even below. The incoming administration also focuses on sustaining higher interest rates to maintain a strong dollar.

Higher Employment levels

The unemployment rate in the US is hitting lower levels as more job seekers settle in new positions. Recent data shows that the US maintains a solid jobs market, with the number of Americans filing unemployment applications dwindling to an eight-month low. Over 256k jobs were added to the US economy last December, more than 50% higher than the projected 160k. Currently, the unemployment rate is 4.1%, down from 4.2%, with projections of possible lower levels as the year progresses.

Concerns for the USD

Most projections on the likely increase in USD’s value are closely tied to Trump’s proposed policies passing Congress’ approval. With the potential impact of Donald Trump’s tariff plans tending toward adverse outcomes for global markets, Congress may reject his fiscal plans. Additionally, Elon Musk, leading the new Department of Government Efficiency, proposes significant spending cuts that can result in slower US GDP growth.

Weakening the dollar is not inherently bad for the economy. However, a stronger dollar can tank international company performance for US investors and affect US companies with international exposure by rendering their products more expensive. The Fed aims to speed up the monetary expansion cycle to tackle the USD strengthening trend, leading to significant adjustments in the USD index rally.

Will The Dollar’s Strength Last, Or Is A Downturn Inevitable?

While the dollar is still going strong, there are concerns that its ascent will soon halt and face retracement. Considering historical data, the dollar has periodically alternated between uptrends and downtrends, making a downturn likely at some point, although the exact time is unknown. Trump’s tariff threats, Musk’s budget cuts, and the US’s persistent trade balance deficit may contribute to the pressure to pull the dollar downward. In the meantime, all signs point to a stronger dollar for the first quarter of 2025.


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