The consensus expects the dollar to outperform again in 2025, and there are good reasons to stick with the herd.

The US economy is demonstrating remarkable resilience, defying expectations for a policy-induced slowdown. Household balance sheets remain solid, labour markets are tight, and real disposable income is climbing—bolstering consumer spending. A supportive fiscal stance, coupled with advances in artificial intelligence, is enhancing corporate profitability and spurring business investment.

Household balance sheets look remarkably strong.
Net foreign portfolio investment, 24-month rolling sums, trillions USD
January 1981 – September 2024

This strong growth backdrop, combined with structural factors including an aging population, persistently-wide deficits, and global geopolitical tensions, suggests that the Federal Reserve’s neutral rate—the theoretical level at which the economy should run neither too hot nor too cold—may settle well above pre-pandemic norms, keeping interest differentials tilted in the dollar’s favour. 

Further, Donald Trump’s policies are set to provide substantial support. The threat of higher tariffs on imports could dampen demand for foreign goods and put additional pressure on rival currencies—even as tax cuts and deregulation enhance short-run growth, bolstering inward capital flows. 

Inward capital flows are providing a strong tailwind
Net foreign portfolio investment, 24-month rolling sums, trillions USD
January 1981 – September 2024