Line chart showing the performance of the dollar (DXY Index) from January 2014 to December 2023. The dollar traded in a volatile range of 80 to 105 from 2014 to 2020. Between 2021 and September 2022, the dollar was on the rise, but reversed course in the fourth quarter of 2022 on hopes that the Fed would move to less aggressive Fed policy. In early 2023, the dollar was rangebound, but the trend moved to dollar strength in the third quarter and reversed to dollar weakness in fourth quarter 2023.
Sources: Bloomberg and Wells Fargo Investment Institute. Daily data from January 1, 2014 to December 31, 2023. The DXY Index measures the value of the U.S. dollar relative to major developed market currencies, notably the euro, the Japanese yen, and the British pound. Fed = Federal Reserve. ECB = European Central Bank. QE = quantitative easing. DXY = U.S. Dollar Index. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.
Key Takeaways
- Our bias remains for modest dollar upside in the first half of 2024, supported by a perceived flight to quality during a global economic slowdown. We also expect the dollar to find support while U.S. interest rates exceed those in the eurozone and Japan.
- A moderating interest rate environment in emerging markets (EM) may provide a broad negative driver to EM currencies in 2024. Still, we believe a global economic recovery in the second half of 2024 may benefit EMs and help offset the interest rate environment to drive EM currency gains.