The US dollar ends its weakest year since the start of the pandemic

Since the beginning of the COVID-19 pandemic, the US dollar has experienced its worst performance in 2023.

In December, there was an increase in the anticipation of US Federal Reserve policy easing.

At the start of 2024, the dollar saw a significant increase in value.

Bloomberg reported that the dollar felt the greatest strain in the fourth quarter as speculation increased that the Federal Reserve would take drastic action to loosen monetary policy in 2024 if the US economy slows down.

In 2023, the Bloomberg dollar index experienced its largest annual decrease since 2020, dropping by almost 3%.

Swap market pricing is now indicating that the Federal Reserve will cut rates by at least 150 basis points, which is double the December forecast from Fed officials. It is anticipated that the first rate cut will occur in March.

SEB notes that markets are ready for a situation in which the Federal Reserve reduces interest rates enough to invigorate the economy without causing a resurgence of inflationary pressures. This has an impact on the dollar's movements.

The Swiss franc has seen a record high since 2015 in 2023, in contrast to the fall of the dollar, as well as the rise of the pound sterling. The Swiss National Bank has taken a more stringent approach than other central banks.

Last year, the British currency saw its best performance since 2017, with Sterling rising more than 5% against the dollar, following the Brexit vote.

Goldman Sachs predicts that GBP/USD could reach 1.35 in 2024, based on its correlation with equities and the diminishing worries of a worldwide recession.

On Tuesday, the first trading day of the new year, the dollar experienced a sharp rise, while US Treasuries and stock markets saw a sell-off.

Monex USA noted that markets are yet to be fully convinced that the Federal Reserve will reduce rates in March, and the minutes released on Wednesday will likely demonstrate this.