JPMorgan Chase: The strong US economy indicates that the dollar will remain strong this year

JPMorgan predicts that, under the support of a strong U.S. economy expected to outperform other developed countries, the dollar may still maintain its strength throughout the year. According to its recent report, the bank attributes the continued strengthening of the dollar to widening global economic performance gaps.

The report points out that it is expected that by 2024, U.S. economic growth will be 2.7%, far higher than other developed economies' forecast of 1.7%. Strong productivity, increased corporate investment and reduced labor shortages have driven this growth, keeping inflation above the Federal Reserve's target of 2%. This could prompt the Fed to delay rate cuts and thus maintain upward momentum for USD.

JPMorgan believes that although The Federal Reserve is expected to ease monetary policy due to a robust economy, this year's rate cut might be small. Markets expect The Federal Reserve will slightly cut rates by 44 basis points while European Central Bank will cut rates by 110 basis points and Bank of Japan is predicted to raise interest rates by 47 basis points.

The report also pointed out another factor supporting USD: policies proposed by new US government administration which aim at promoting domestic manufacturing industry, raising tariffs and relaxing industry regulations could stimulate business growth and maintain higher interest rates thereby further supporting USD.

However JPMorgan warns about challenges facing long-term trend for USD; country’s trade deficit accounting for 4.2% GDP at end-2024 reflects serious dependence on imported goods; despite current strength in USD such structural imbalance could eventually weaken its position.