2024 has seen the US dollar performing better than expected, thanks to a strong US economy and inflation data that had exceeded expectations.
However, uncertainties loom, according to financial analyst for Steno Research Oskar Vårdal.
“The USD looks to have broken the clear downtrend from Q3/Q4 last year,” he says. “But the combination of rising inflation expectations and potential cuts from the Fed allows USD real-rates to diminish compared to peers.”
Vårdal highlights that US Secretary of Treasury Janet Yellen recently said she was wrong to think inflation was temporary, indicating that US and Fed officials may have been too optimistic about inflation decreasing last year.
“While markets have hawked up rates expectations for both June and December, the idea that the Fed would even cut rates at all with inflation expectations on the rise leaves an interesting outlook for both the USD and US rates, as the Fed will possibly allow for real rates to diminish even further - also compared to peers.”