Wall Street analysts predict that the U.S. dollar is set to continue its upward trend, with JPMorgan Chase projecting a 7% increase in the dollar index in the coming months. This potential surge hinges largely on the scope and speed of policies implemented under the Trump administration, especially concerning tariffs and their acceptance of a stronger dollar.
The dollar recently hit a six-month high as tariff-related inflation concerns strengthened its momentum. The Bloomberg Dollar Index also reached its highest level since November 2022. As a result, major non-U.S. currencies, including the euro, yen, and Canadian dollar, have faced pressure, hitting significant psychological levels.
Leading financial institutions like JPMorgan Chase, Goldman Sachs, and Citigroup expect the dollar to rise further due to fears that tariffs could worsen inflation and negatively impact foreign economies. The extent of this increase will likely depend on how Trump’s tariff policies materialize if he assumes office.
Traders are betting on further gains in the dollar, with bullish sentiment reaching the highest levels since early July. The anticipation of aggressive tariff policies, coupled with potential tax cuts, has lowered expectations for additional interest rate cuts by the Federal Reserve, with the likelihood of a rate cut in December dropping to about 62%.
Reports of potential aggressive foreign policy moves by Trump, including appointments of hawkish figures and the possibility of tariffs, have further influenced the dollar's trajectory. The Republican party’s congressional victories could also accelerate Trump's fiscal and trade policy agenda.
Deutsche Bank's George Saravelos and other strategists highlight the significant uncertainty surrounding policy changes. The rapid implementation of Trump’s plans could see the euro/dollar pair fall below parity.
Many banks have lowered their euro forecasts, reflecting the risk of the euro/dollar pair reaching parity next year. Despite uncertainties, analysts like Meera Chandan from JPMorgan Chase remain convinced that the dollar index will rise by 7%, nearing parity with the euro.
Goldman Sachs strategist Kamakshya Trivedi acknowledges that while a stronger dollar is not guaranteed, protective measures from other countries could influence its rise. Barclays and Brown Brothers Harriman strategists also see no major deterrents to the dollar’s strength, attributing it to favorable economic conditions and the Fed's inaction on further rate cuts.
Societe Generale's Kit Juckes forecasts the dollar peaking before Trump’s inauguration, although it is expected to remain strong throughout the year.
