The U.S. dollar appears poised to close the year with gains exceeding 6%, marking a significant rebound after its dip last year. Despite a recent easing of inflationary pressures, the outlook for 2025 remains uncertain as markets and policymakers navigate a complex global landscape.

Key Highlights:

• Fed Policy Outlook: While Friday’s benign U.S. inflation data calmed fears about aggressive Fed cuts, markets are pricing in only 35 basis points of easing for 2025, lending ongoing support to the greenback.
• Dollar Strength Factors: According to Jonas Goltermann of Capital Economics, the dollar is likely to strengthen further in 2025, supported by U.S. economic outperformance, a widening interest rate gap with G10 peers, and higher tariffs expected under the incoming Trump administration.
• Global Policy Caution: Central banks worldwide have adopted a cautious stance due to uncertainties surrounding President-elect Trump’s policy plans, including tariffs, tax cuts, and immigration restrictions.
• Impact of Tariffs on Monetary Policy: Goldman Sachs highlighted the dual risks tariffs pose to monetary policy. While the inflationary effects of tariffs are typically short-lived, the 2018–2019 trade war demonstrated how such measures could tighten financial conditions enough to influence Fed decisions.

As 2025 approaches, the dollar’s trajectory will depend heavily on U.S. policy shifts, global economic performance, and how central banks adapt to evolving fiscal and trade conditions. For now, the greenback benefits from resilient fundamentals and cautious market sentiment.