Experts Predict U.S. Dollar Will Stay Strong In 2024. What Does This Mean For You? (2024)

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Near the tail end of an unstable year for the global economy, the U.S. dollar hit a 20-year high in value.

A number of factors, both domestic and international, have contributed to the strength of USD. Though economic conditions could shift in 2023, experts predict the dollar will hold a strong position.

Why Is the U.S. Dollar so Strong?

We asked experts to break down why the U.S. dollar gained strength against other currencies in 2022. They offered a few key explanations:

The U.S. Dollar Is Still Considered Safe-Haven Currency

The dollar’s role in the global economy has been a major factor in its strength in 2022.

The greenback’s reliability has made it the dominant global reserve currency since World War II, meaning it is most used by central banks around the world for international trade and financial transactions.

“The primary reason the dollar became so strong is that it is still considered the safe-haven currency, and it will strengthen during times when markets are in a state of fear,” explains Eric Donovan, head of Institutional FX at StoneX, a financial services company.

Dave Schabes, assistant instructional professor at the University of Chicago’s Harris School of Public Policy, adds that the war in Ukraine is a specific, contributing factor.

“The U.S. has always been viewed as the number- one global safe haven in times of political or military uncertainty, ” he says. “When war actually broke out, investors looked for stable places to put their money until the war resolves itself.”

In the meantime, Russia’s war on Ukraine threatens to slow economic growth throughout Europe and drag out the continent’s energy crisis through 2023 and possibly 2024.

Continued Interest Rate Hikes

The strength of the dollar, which is measured by the U.S. dollar index (USDX), is relative to other currencies. That means other nations’ economic policies play a role in its value.

In particular, the dollar index measures USD against the euro (EUR), Japanese yen (JPY), British pound (GBP), Canadian dollar (CAD), Swedish krona (SEK) and Swiss franc (CHF).

Unlike USD, these other currencies haven’t been subject to the same rate-hike policies that have been put in place to slow inflation in the U.S. “While all these countries have raised interest rates,”says Schabes, the U.S. has raised them far higher.

“The U.S. can afford to do this because the U.S. economy is still fairly strong,” he explains, “while the Eurozone is suffering from weakness in several countries, exacerbated by the price increases both directly in natural gas and oil as well as the knock effects through the supply chain.”

According to Michael Madowitz, director of macroeconomic policy at the Washington Center for Equitable Growth, slowing inflation in the U.S has also resulted in investor money being diverted away from other nations and into the United States.

Will the U.S. Dollar Grow in 2023?

A number of shifting factors could affect the dollar’s value in the coming year.

It’s uncertain if the Federal Reserve will continue adjusting interest rates, but the United Nations has encouraged the agency to halt increases. Further hikes, it says, could spur global recession and hurt developing countries that have already been hit hard by the increased cost of U.S. goods.

There may be more rate hikes, nonetheless. “Until the Fed sees inflation moderate substantially, and as long as the US economy does not fall into recession, I expect that the Fed will continue to raise rates through a good portion of 2023,” says Schabes.

At the same time, other nations have begun instituting their own rate increases and may continue, which could balance out the position of the dollar.

“With rate hikes across the globe coming,” says Madowitz, “higher U.S. rates are a part of the strong dollar story, but much less than we’d expect for how fast the Fed has raised rates.”

The ongoing conflict in Ukraine is also expected to play a part in the value of USD in 2023. Both Donovan and Schabes predict that the dollar will remain strong in comparison to European currencies as long as the war persists.

How Does a Strong Dollar Benefit U.S. Consumers?

A strong dollar has mixed implications for U.S. consumers.

As the currency increases in value, U.S.-based stock prices can be expected to drop, which means a loss in the value of retirement savings for many investors. One study from Northwestern Mutual found that the average retirement savings balance had dropped by 11% since 2021.

On the upside, higher dollar values mean certain goods are more affordable. “A strong dollar makes imported products relatively less expensive versus domestically produced products,” says Schabes.

According to the Bureau of Labor Statistics, the price of imported goods dropped by 1.1% in September—when the U.S. dollar peaked— and by another 0.2% in October.

Travel abroad can also be more budget-friendly when the dollar strengthens, particularly in regions where it has grown in comparison to the local currency. As of late 2022, that includes Japan, the United Kingdom, Sweden, Switzerland and Canada.

Experts Predict U.S. Dollar Will Stay Strong In 2024. What Does This Mean For You? (2024)
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