The dollar could do very well next year
Nov 25 (Reuters) -The dollar could do very well next year if risk aversion stemming from U.S. trade policies fuels the rally that bullish techs already support.
The dollar, which has been in an uptrend since 2011 and underwent a correction in 2022 that laid the foundation for a bigger rise, could gain between 4-9% before investment in it grows large enough to stifle its rally, or the Federal Reserve lowers the U.S. interest rate to offset the significant tightening effect that a rise would have on monetary policy.
The dollar could potentially rise much further with the main target for the uptrend an almost 27% rise above its current level.
The main caveat for an increasingly bullish outlook is Donald Trump whose election victory has sparked its rally. How he views the U.S. currency is key to its future because its strength will make it far harder for him to achieve his aims. Should he proceed with his plans, however, the resulting risk aversion is certain to support demand for safe assets, and the world's reserve currency is arguably safest.
Not much cash is invested in the dollar at this stage and unless huge volumes of money flow into the U.S. unit as they did during the tightening cycle, there is little to stop it rising.
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Trade-weighted dollar https://tmsnrt.rs/4fFYj5j
Jeremy Boulton is a Reuters market analyst. The views expressed are his own, editing by Ed Osmond
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