FX.co ★ Wells Fargo expects USD to remain strong

Most analysts and market participants believe in the strength of the US dollar. They think that the US currency will remain strong, even with the potential significant rate cuts from the Federal Reserve in 2024 and 2025.

According to analysts at Wells Fargo Investment Institute, the dollar will maintain its high value. They explain this outlook by highlighting factors such as interest rate differentials, the global economic situation, and the dollar's performance compared to other key currencies.

For several years, the main driver of the dollar's strength has been the interest rate differential. However, since March 2022, when the Fed began aggressively raising rates, the greenback has been trading above its historical averages.

The Fed is expected to start cutting interest rates soon, which could lead to a significant depreciation of the dollar. However, analysts suggest that the greenback might stay within its current range because other major central banks, like the ECB and the Bank of Japan, are also likely to cut their rates.

Wells Fargo is confident that the interest rate gap between the US and other developed countries will persist. In this scenario, the dollar's value will remain high. Preliminary forecasts suggest that the ECB will keep rates unchanged, while the Bank of Japan is likely to lower them.

The global economic climate remains unstable. The eurozone, in particular, is facing significant challenges, including declining demand for exports. This could negatively affect the euro, thereby providing additional support for the greenback.

Despite the anticipated slowdown in US economic growth, Wells Fargo expects the country's economic performance to improve relative to other nations. This relative stability, along with the Fed's cautious approach to rate cuts, could support the US dollar.

According to Wells Fargo analysts, even with the projected rate cuts, a significant drop in the dollar’s value is unlikely. The US dollar index reflects the interest rate differential and signals global economic uncertainty, which continues to drive demand for the greenback.

Wells Fargo also favors US stocks and bonds over international assets and emerging market securities. They suggest that maintaining the dollar's high value will have a positive impact on global markets, making investments in the US more attractive.

Currency strategists at Wells Fargo conclude that the dollar's status as the world's leading currency will remain stable, even with changes in the Fed's monetary policy.