Dollar in the USA has experienced a broad decline in 2024 as the Federal Reserve begins cutting interest rates. The dollar’s performance will vary against individual currencies due to global central bank cuts and shifting economic conditions.
Central banks worldwide, including the Federal Reserve, are anticipated to lower rates, which could narrow the yield gap between the dollar and other currencies. This trend might reduce the dollar’s attractiveness for investors seeking higher returns. Economic growth and interest rate policies in other regions will also be crucial. For instance, the Japanese yen might strengthen if Japan implements potential rate hikes, while the Mexican peso could benefit from shifts in US investment patterns. Emerging-market currencies might gain from US rate cuts, though their performance will vary.
Recently, the dollar fell after Federal Reserve Chair Jerome Powell hinted at a possible rate cut in September. This led to a rise in the British pound to a two-year high and the euro to a 13-month high, while the dollar hit a 17-day low against the yen. Powell’s remarks highlighted reduced inflation risks and growing employment concerns, with markets predicting a 65% chance of a quarter-percentage-point cut and a 33% chance of a 50-basis point cut. As a result, the US dollar index dropped by 0.81% to 100.64. The pound rose to $1.32295, the euro ended at $1.1195, and the dollar/yen fell 1.36% to 144.27. Additionally, the Australian dollar and New Zealand dollar strengthened, and Bitcoin advanced by 4.2% to $63,227.
The US dollar became the world’s main reserve currency with the Bretton Woods Agreement in 1944, which tied other currencies to it. The dollar’s importance started in 1914 when it was first printed after the Federal Reserve was created. During World War I, the dollar gained power as Allies paid in gold, increasing its reserves. In 1971, the dollar was no longer backed by gold, and exchange rates began to float. By late 2023, 58.4% of foreign bank reserves were in US dollars, showing it remains a key global currency.
As we navigate 2024, investors should closely monitor currency exposure and adjust their strategies based on evolving economic conditions and central bank policies.