The US dollar was poised to end the year on a sour note and continue a downward spiral heading into 2025. But, so far, this has not happened. In fact, the buck is at its best level in two years and is the top-performing currency of any advanced economy in the world. While it is true that the greenback has lost most of its value over the past century, global financial markets are ebullient over the dollar because currencies elsewhere, for the most part, offer very little prospects for the future.
King Dollar Sits on the Throne
The US Dollar Index (DXY), a measure of the greenback against a weighted basket of six currencies dominated by the Japanese yen and euro, had a terrific 2024. Last year, the index rocketed 6.5% to 108.53, the highest level since October 2022.
This was not supposed to occur. Heading into the Federal Reserve's September policy meeting, the DXY slumped and looked poised to sink below 100.00. Liberty Nation News reported that the Fed kicking off the easing cycle with a super-sized half-point interest rate cut led to different conclusions in the broader marketplace, suggesting traders were fighting the Eccles Building.
Treasury yields soared, climbing to levels unseen since the spring. The benchmark ten-year yield has surged about 1% over the last three months. If the upward trends persist, the 20- and 30-year US government bonds could touch the promised land of 5%. This adversely affects many parties, particularly borrowers (mortgages, auto loans, and credit cards) and Uncle Sam (debt-servicing costs keep growing).
Indeed, the US dollar has followed the same ascending path, creating mixed results for the wider economy. First, this is good news for importers since it increases their purchasing power. Second, it is not a terrific development for an incoming administration that wants to bolster exports. Finally, the dollar’s strength maintains its grip on the global financial markets – why would anyone want to ditch a currency as good as gold right now?
But while the market frontrunning the Federal Reserve could be a factor, another elephant is in the room: the abysmal state of currencies worldwide. The Indian rupee recently cratered to a fresh all-time low against the buck. The Canadian loonie has tumbled 8% against the US dollar. The Japanese yen was on the brink of spiraling out of control this past summer before the Bank of Japan intervened, though it still plummeted 9% against the US dollar. The Chinese yuan has not only declined 2% against the greenback, but the currency belonging to the world’s second-largest economy is prone to manipulation. Put simply, where exactly could you park your money?
Got Cocoa?
Has anyone seen the price of cocoa lately? What a year it was for the world's second favorite bean (behind coffee, of course). Cocoa futures spiked 175% in 2024, registering a record high of nearly $13,000 per metric ton on the US ICE Futures exchange.
The surge was fueled mainly by supply concerns in West Africa. It has been a blend of poor weather conditions, aging trees, sky-high fertilizer prices, and terrible infrastructure. Even with soaring costs, demand has remained relatively intact, though companies have warned that consumers' sweet tooth has eroded and will modify their ingredients.
During the summer, markets signaled that relief might be coming to the key growing areas of Ghana and the Ivory Coast. However, in the final weeks of the trading year, cocoa prices quickly regained momentum around $12,000. So far, higher cocoa prices have refrained from seeping into the broader chocolate market. It is unclear how long this will last.
Biden’s Gift to Trump
Has President Joe Biden handed the gift of a ticking time bomb to President-elect Donald Trump?
The newest discussion in the world of economics is whether inflation is making a comeback. All the signs point in the affirmative. The central inflation gauges – the consumer price index, the producer price index, and the Fed’s preferred personal consumption expenditure price index – have risen since the Fed cut interest rates, and early estimates suggest they will rise again this month. The money supply rose every month in 2024, financial conditions are the loosest since before the central bank’s quantitative tightening cycle, and government spending, deficits, and debts have signaled little signs of constraint.
Like the almost-guaranteed downward revisions to a batch of employment data, Trump is more than likely to take the blame for any rekindling of the inflation flame.
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