(Bloomberg) -- The dollar is headed for its best quarter since 2022, with the currency climbing to a two-year high this week as a resilient US economy and a hawkish Federal Reserve outlook have bolstered its appeal.
The Bloomberg Dollar Spot Index has gained 6% since the end of September. It came under pressure on Friday, falling 0.6% after fresh data showed the Fed’s preferred measure of underlying inflation came in cooler than expected.
Still, the greenback is on path for its best year since 2015, driven by solid domestic growth, a healthy labor market and inflation that has proved sticky above the Fed’s 2% target. Those factors pushed US rate-setters on Wednesday to lower their expectations for the amount of monetary easing next year, which sent the dollar sharply higher.
HSBC analysts on Thursday said this backdrop is “hitting all the right notes” for the dollar, and they see no conditions that would weaken it in 2025.
Aroop Chatterjee, a strategist at Wells Fargo, expects Trump’s policy agenda, including steep trade tariffs, to boost dollar strength.
The “Trump trade, immigration and fiscal policies may substantially shift the macro backdrop further in favor of the dollar,” he said.
The robust US economy stands out at a time when many developed nations are facing anemic growth. That outlier status has been a boon for the currency.
“We need evidence that the rest of the world is seeing signs of life,” said Nathan Thooft, a senior portfolio manager at Manulife Investment Management. “Unfortunately those signs are still going in the wrong direction.”
Non-commercial investors — a group of speculative market players that includes hedge funds and asset managers — raised their dollar longs to $28 billion, the most bullish level since May, according to data from the Commodity Futures Trading Commission for the week ending Dec. 17.
“There’s a consensus among the clients we talk to,” Paula Comings, head of FX sales at U.S. Bancorp, said in an interview. “Short-term, the dollar is stronger for longer. In the medium-term, by the middle of next year, the trade deficit, the poorer fiscal outlook, there’s so much uncertainty.”
--With assistance from Carter Johnson.
(Updates with positioning data from CFTC)