Let’s take a look at the chart depicting the trajectory of the DXY index since the start of 2024. The US dollar has increased by more than 3% against the basket of other majors. It’s worth noting that many experts predicted a massive drop in the USD early in the year.
Of course, the aforementioned figure is average. To provide context, we’ve included the USDJPY, the USDEUR, and the USDGBP in the same chart over the same time period. While the USDJPY rate notably impacted the power dynamics with its decline, the pound and the euro also saw decreases.
A glance at the 5-year chart reveals that the USD is approaching its best stats from the previous year – the fall of 2023. The DXY reached its peak once during these years, at the beginning of the military conflict between Russia and Ukraine.
Market participants discounted the US dollar due to concerns that the US economy would soon face recession and that the Federal Reserve would cut interest rates much earlier than other major regulators. Several cycles of such expectations resulted in the USD charts resembling a roller coaster. However, each new turbulent phase propelled the dollar even higher than before.
First, the euro was a potential leader, but then it turned out to be that the European Central Bank would likely cut interest rates as early as June.
Subsequently, the British pound assumed this position, buoyed by differences in monetary policies; the Bank of England expected to reduce rates in August. However, the latest meeting of the UK regulator indicated that the key rate might be lowered earlier, possibly in June.
Meanwhile, the Fed has shown no inclination towards any interest rate adjustments. All the pieces of this puzzle have finally aligned, allowing the US dollar to reclaim its leading position. Nevertheless, the roller coaster is poised to begin a new cycle, so everything could change in the blink of an eye.
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