US Dollar Forecast: DXY Hits New 2024 High as Trump Policies Pressure Euro and Boost Bitcoin

Dollar Gains Momentum on Trump Policy Expectations and Yield Surge

The U.S. dollar rallied to a one-year high against major currencies on Thursday, with growing momentum tied to President-elect Donald Trump’s impending economic policies and a surge in Treasury yields. The dollar index (DXY), which tracks the greenback against six primary currencies, rose 0.3% to 106.79, briefly touching 107—a level not seen since early November 2023—as the market anticipated policy shifts that could reshape the Federal Reserve’s rate strategy.

Dollar Strength Against Major Currencies

The greenback extended gains against the yen, breaking past 156 yen for the first time since July, while the euro slid to $1.0531, its lowest level since November 2023. The British pound also weakened to a four-month low at $1.2630. Market analysts attributed the rally to the anticipated economic direction under Trump, with higher trade tariffs and reduced immigration expected to stoke inflation. This, in turn, could encourage the Federal Reserve to slow down or even reverse its current easing policy sooner than previously projected.

“The story for FX markets is dominated by the dollar and Donald Trump,” commented Nick Rees, currency strategist at Monex Europe, underscoring the market’s reaction to Trump’s proposed policies. Additionally, higher spending and growth expectations under a Republican-controlled Congress continue to bolster Treasury yields, enhancing the dollar’s appeal.

Treasury Yields Push Dollar Higher

The benchmark 10-year U.S. Treasury yield climbed to 4.483%, its highest since July, as investors weighed the impact of Trump’s policy agenda, which includes expectations for deeper deficit spending and accelerated economic growth. These factors are driving rates higher across Treasury maturities, supporting demand for the dollar as traders seek yield advantages in dollar-denominated assets.

Though the Fed has been easing rates to counterbalance slowing inflation, the potential for rising inflation due to Trump’s policies could alter that trajectory, forcing the Fed to maintain or raise rates in the medium term. Despite a slight pullback after the latest U.S. consumer inflation data met forecasts, traders used the opportunity to buy into the dollar, signaling bullish sentiment for further gains.

Broader Market Reactions and Bitcoin Surge

In addition to foreign exchange, the cryptocurrency market showed strong reactions to Trump’s pro-crypto rhetoric. Bitcoin hit a record high of $93,480 on Wednesday night and appeared set to test those highs again on Thursday as Trump reiterated his commitment to making the U.S. a global hub for cryptocurrency innovation.

Meanwhile, the Swiss franc experienced mild pressure against the dollar, trading up 0.4% at 0.8897 francs, though it gained against the euro, which remains weak amid the dollar’s strength.

Fed Outlook and Potential Market Impact

Federal Reserve officials, including Chair Jerome Powell, Richmond Fed President Tom Barkin, and New York Fed President John Williams, are delivering speeches this week as the market watches for hints on the Fed’s next move under a Trump administration. Although another rate cut is possible at the Fed’s December meeting, Trump’s economic policies could sway the Fed’s stance, creating a more hawkish outlook if inflation accelerates.

Market Forecast: Bullish Dollar Continuation

Given the dollar’s current strength driven by Treasury yields and Trump’s policy outlook, the DXY index is likely to retain its bullish trend in the near term. Market participants are expected to remain in favor of dollar long positions, especially if inflation indicators continue to rise and support further yield increases. As such, traders may anticipate continued dollar strength through the remainder of 2024.