Discover how the U.S. dollar surged to dominate global currencies in 2024, reshaping economic power dynamics post-election.
As the world’s primary reserve currency, the U.S. dollar (USD) plays a critical role in international trade, investment, and monetary policy. Over the past decade, debates have intensified about the dollar’s waning influence amid the rise of competing currencies like the Chinese yuan. Proponents of De-dollarization cite geopolitical shifts and China’s growing influence as catalysts for an evolving global monetary system.
However, 2024 has shown that reports of the dollar’s decline may be premature. Against the backdrop of economic uncertainty, political change, and contrasting monetary policies, the USD staged a significant rally, outperforming major regional currencies and reasserting its dominance (top infographic below).
USD Performance in 2024: A Year of Strength
The U.S. dollar emerged as the standout currency in 2024, gaining 6.7% against its global peers. This exceptional performance can be attributed to several factors - a resilient U.S. economy, rising interest rates, and heightened demand for safe-haven assets during periods of global economic turbulence.
Emerging markets and developed economies alike saw their currencies weaken against the dollar. The Mexican peso experienced one of the sharpest declines, plummeting 18.2%, while the Japanese Yen fell 10%. Even the Euro, often considered a strong alternative to the USD, saw a 5.9% depreciation.
Meanwhile, currencies like the Indian Rupee and South African Rand declined by 2.8%, indicating widespread challenges in maintaining parity with the mighty dollar. Interestingly, the UAE dirham remained stable, reflecting its peg to the USD and the relative stability of the Gulf region. However, for most other currencies, the dollar’s ascent presented significant economic challenges, including rising import costs and inflationary pressures.
Post-Election Surge: The Dollar’s Bull Run Accelerates
The November 2024 U.S. elections marked a turning point in the dollar’s performance. Bloomberg’s Dollar Spot Index showed a nearly 5% increase following the election (bottom chart below), signaling heightened investor confidence in the new administration’s economic agenda. Key trading partners’ currencies, including the Euro, Canadian dollar, and Mexican peso, faced significant downward pressure during this period.
➤ Euro (€): The Euro experienced a significant drop following the U.S. election, depreciating nearly 6% against the dollar by the end of the year. This decline stemmed from diverging monetary policies, with the European Central Bank adopting a more dovish stance than the Federal Reserve. Additionally, systemic economic issues and ongoing geopolitical challenges in Europe continue to weaken the single-unit currency.
➤ Mexican Peso (MXN): The Peso’s steep decline of 18.2% reflects vulnerabilities in emerging markets, exacerbated by U.S. trade policies and geopolitical tensions. The peso was one of the worst-performing currencies in 2024, highlighting Mexico’s economic dependence on the U.S. and the challenges posed by a strong dollar.
➤ Canadian Dollar (CAD): Although less volatile than the peso, the Canadian dollar still lost ground, reflecting the USD’s strength and the relative weakness of Canada’s export-driven economy, which faces tariff threats from the U.S. Moreover, lower oil prices and reduced demand for Canadian exports contributed to the CAD’s underperformance.
One of the main reasons behind the USD’s ascent was the rising U.S. Treasury yields, which attracted foreign investment, and expectations of deregulation and tax breaks from the incoming U.S administration. Additionally, global risk aversion amid geopolitical uncertainties further increased demand for the dollar as a safe-haven asset.
Strategic Importance of USD Strength
The incoming U.S. administration has signaled its commitment to maintaining a strong dollar policy. Officials have emphasized the importance of USD strength in preserving America’s global economic influence. A robust dollar bolsters the U.S.’s position as the preferred currency for international trade and finance, reinforcing its status as the world’s economic leader.
However, the dollar’s dominance is not without challenges. A stronger USD can weigh on U.S. exports by making them less competitive globally and exacerbate debt burdens in emerging markets with dollar-denominated liabilities. As the U.S. seeks to balance domestic economic priorities with global leadership, the dollar’s strength will remain a cornerstone of its strategy.
Originally published at Substack.