How Long Can the Dollar Remain Strong?

Recently, the dollar has performed strongly in the foreign exchange market, with the dollar index reaching a new two-year high. On January 8, the exchange rate of the dollar against the yen and the yuan hit their highest levels in six months and nearly a year and a half, respectively.

This trend reflects the strength of the dollar, primarily fueled by the US economic recovery and high interest rates. Additionally, US long-term interest rates have risen to 4.7%, attracting significant overseas capital inflows, further supporting the dollar's appreciation.

Trump, who is set to resume the presidency on January 20, 2025, may have a significant impact on the dollar's trajectory. Known for advocating higher tariffs, Trump‘s policies could not only support the dollar’s exchange rate but also push up prices and delay the Federal Reserve's rate cuts.

If higher tariffs are imposed, foreign companies may move their production lines to the US, thereby increasing demand for the dollar. Moreover, Trump's “America First” policy and his strong stance on tariffs have further bolstered market optimism about the dollar's outlook.

Analysis of the Dollar's Future Outlook

While the dollar is strong at the moment, its ability to maintain this trend is still unclear. First, the global trend of “de-dollarization” is quietly gaining momentum, especially as some countries increase trade settled in yuan.

According to the latest data, the yuan has surpassed the euro to become the second most traded international currency, behind only the dollar. Second, the dollar‘s appreciation may limit the competitiveness of US exports, especially under Trump’s policies, which could lead to higher import prices and increased inflationary pressures.

Despite the dollar's current strength, investors should remain cautious. Trump's trade policies and the Federal Reserves monetary policies could introduce uncertainty.

The future trajectory of the dollar will depend on global economic conditions, US inflation pressures, and the international markets dependence on the dollar. During this period, investors should remain flexible with their strategies to cope with potential market fluctuations.