The US Dollar Index has seen a 2.8% increase as of Friday morning, marking a reversal of its slide last November. Investors had been optimistic that the Federal Reserve would soon cut interest rates, which led to the US currency ending the year lower against a basket of currencies. However, Fed Chair Jerome Powell said in January that interest rate cuts are unlikely to begin in March, as widely believed.
In recent weeks, piping hot economic data has supported the notion that the Fed will keep rates higher for longer. The economy added an eye-popping 353,000 jobs in January and the Consumer Price Index rose 3.4% annually in December, still above the central bank’s 2% target.
A stronger dollar is bad news for American companies but it also means that US companies and consumers could spend less for imported goods and Americans’ purchasing power increases when traveling abroad. The greenback is strengthening again after a bumpy 2023 as Wall Street accepts that interest rate cuts are coming later than previously expected.