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Key Takeaways
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The U.S. dollar is estimated to have climbed to a 55-year high at the end of the year by one inflation-adjusted measure, according to Bank of America Securities analysts.
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The dollar surged in the last months of the year as Wall Street lowered its expectations for interest-rate cuts.
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The dollar's strength also reflects expectations that President-elect Donald Trump's policies will boost economic growth in the near term, although analysts note that Wall Street may be underestimating how those policies could slow growth.
The dollar has soared to its highest level in decades in recent months and is expected to remain strong well into this year.
The value of the dollar surged in the final three months of the year, as Wall Street tempered its expectations for interest-rate cuts following a slew of strong economic reports. Bank of America (BofA) Securities analysts estimate the dollar’s inflation-adjusted exchange rate, or real effective exchange rate, climbed to a 55-year high at the end of 2024.
Here's what some analysts expect for the dollar in 2025—and what it could mean for your money.
What Is the Outlook for the Dollar in 2025?
Analysts expect the dollar to maintain its strength in the first half of 2025 as the U.S. economy continues to outpace its peers and many economists’ expectations.
“Barring any unforeseen and abrupt turn in the US data, it is difficult to see a near-term catalyst that would materially push the USD lower,” wrote BofA analysts in their 2025 USD forecast. The analysts, however, expect the dollar’s valuation to normalize in the second half of the year, “with the details of US policies determining the exact path and its timing.”
Some investors expect that the policies of President-elect Donald Trump and a Republican-led Congress will boost near-term economic growth, further reducing the need for rate cuts. Higher rates generally strengthen the dollar.
Trump’s tariff proposals, tax policies, deregulation plans, and promise of mass deportations all have the potential to spur inflation, either by stimulating growth or raising costs for businesses, which could require rate cuts.
Wall Street, BofA analysts say, has tended to focus on the pro-growth potential of said policies. But they also have the potential to drag on growth, suggesting there’s notable downside risk to the dollar’s current levels.
What Does a Strong Dollar Mean for You?
A strong dollar is welcome news for anyone looking to convert their dollars, whether that’s tourists, business travelers, or immigrants sending remittances to family abroad. But it can also cause some businesses and investors pain.