The US Dollar Index has increased by 2.8% for the year as of Friday morning. The US currency had slid in November and ended the year lower against a basket of currencies, but investors were optimistic that the Federal Reserve would soon cut interest rates. However, Fed Chair Jerome Powell announced in January that interest rate cuts are unlikely to begin in March, which was widely believed would happen.
Recent economic data has supported the notion that the Fed will keep rates higher for longer, with the economy adding an impressive 353,000 jobs in January and the Consumer Price Index rising 3.4% annually in December, still above the central bank’s target of 2%.
A stronger dollar is good news for American companies as it means they can spend less on imports, but it also means that Americans could spend less on imported goods and their purchasing power decreases when traveling abroad. However, a weaker dollar could lead to inflation and currency devaluation.