The Federal Reserve’s unexpected shift in December has paved the way for a sustained decline of the U.S. dollar into 2024, despite the potential resilience of the American economy.
Having reached a two-decade peak in 2022 due to the Fed’s series of rate hikes, the U.S. currency has exhibited a more subdued performance this year. The combination of robust U.S. economic growth and the central bank’s commitment to maintaining elevated borrowing costs has kept the dollar within a relatively narrow range.
Looking at the year as a whole, the dollar is poised to register a 2% decline against a basket of global currencies, marking its first annual decrease since 2020.
Chairman Jerome Powell’s announcement during the December Fed meeting signaled an unexpected shift in monetary policy. Powell indicated that the extensive tightening measures that propelled interest rates to historic highs were likely concluding, thanks to a moderation in inflation. As per the latest projections, policymakers anticipate a 75-basis-point reduction in rates in the coming year.