As 2025 approaches, the dollar is expected to have a strong start but may face challenges throughout the year, according to the latest Bloomberg Markets Live Pulse survey. The survey participants expressed concerns about factors such as faster inflation and a growing fiscal deficit that could impact the dollar’s performance over the coming months.
Survey respondents were divided on the risks that could potentially harm the dollar the most in the future. The majority, 38%, highlighted worries about the fiscal deficit, while 32% believed that weaker U.S. and global growth could weigh on the greenback, especially if President-elect Donald Trump follows through on his campaign promises of imposing tariffs.
Despite the current bullish sentiment towards the dollar, with the Bloomberg Dollar Spot Index trading at its highest level since 2022, some analysts caution that the long-term impact of Trump’s policies on the economy could diminish the currency’s appeal. The dollar experienced a similar pattern during Trump’s first term, appreciating initially but later declining as economic conditions changed.
However, there are still more proponents of dollar strength in the short term compared to bearish views. Around 70% of survey participants anticipate that the Bloomberg Dollar Gauge will trade higher in the next month. Two key factors supporting this optimism are the Federal Reserve’s cautious approach to interest rate cuts, which is expected to attract investors to U.S. assets, and the uncertainty surrounding Trump’s economic policies, which could drive a “haven bid” for the dollar.
Investors are confident in the dollar’s outlook despite historical data showing that the currency typically weakens in December. Respondents believe that the Mexican peso, yen, and Brazilian real will be most affected by future dollar strength. Speculative traders have increased their long dollar positions since the U.S. election, holding significant bullish derivatives wagers.
Looking ahead, many investors expect the dollar to peak before U.S. equities, and they plan to maintain their exposure to the S&P 500 Index. The potential impact of risk factors such as high tariffs and inflationary policies on the dollar’s strength adds complexity to the currency market environment. Analysts suggest that understanding how specific Trump policies will shape currency markets will require time and could lead to increased volatility in the future.
Overall, while the dollar is currently enjoying a bullish trend, uncertainties surrounding Trump’s economic agenda and other risk factors could lead to fluctuations in the currency’s value in the long term. Traders will need to carefully assess short-term risks and remain vigilant about potential changes in the market dynamics as 2025 unfolds.
