Dollar strength to peak in 2025 - BCA

The US dollar has been one of the main beneficiaries of the events of this year, but BCA sees the greenback peaking in 2025, weighed by coordinated policies to limit its strength.

At 06:05 ET (11:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 106.280.

However, the index is over 5% higher so far this year, helped by US growth outperformance as well as the threat of tariffs in the wake of Donald Trump’s victory in the year’s presidential election.

“However, odds are rising that the trade-weighted US dollar will roll over and depreciate next year,” said analysts at BCA Research, in a note dated Dec. 11. “While the precise timing of a top in the greenback is uncertain, we believe it will be in H1 2025.”

Trump’s administration will actively try to devalue the dollar, the investment research company said, as creating manufacturing jobs in the US requires either high import tariffs or substantial dollar depreciation. 

A policy that devalues the greenback is a better option than one that imposes trade barriers. The former would increase US manufacturing competitiveness without delivering a negative impact to businesses and investors. 

The research house thinks the Trump’s administration will use the threat of very high tariffs to force other nations to appreciate their currencies. 

While it is against their economic interests to appreciate their own currencies when domestic growth is very weak, Europe, Japan, and China will agree to upward adjustments to their exchange rates from very low levels to avoid high US import tariffs.

Importantly, they can eventually engineer currency depreciation after the dust of the US tariff threat settles.

“In short, there could be coordinated policies among major countries to devalue the US dollar, such as the Plaza Accord of 1985. Foreign exchange market interventions rather than higher interest rates outside the US might be used to bring down the greenback,” BCA said.

 

Source: Investing.com