Dollar, 2024 forecast. Here's why it will be a difficult year

While speculation continues regarding the monetary policy prospects of the central banks of Western countries, the currency market persists in seeking, through its own fluctuations, an adjustment in anticipation of future moves by the central banks.
The next FOMC meeting is scheduled for January 31st and, according to CME estimates collected by the FedWatch Tool, there is a 97% probability that the rate will be between 525 and 550 (Current); however, this value has shown significant fluctuations in the recent period, highlighting a certain uncertainty on the part of the market, which has even begun to partially question the cuts announced by the president of the US central bank, Jerome Powell.
The dollar rises with the change in rate expectations It should be noted that, in the last period, the currency market has exhibited a more chaotic trend than what we have been accustomed to in recent years.
The dollar, in particular, has taken on a strong directionality, supported by solid macroeconomic prospects.
Although the dollar has shown a substantially bearish trend since November, this has been punctuated by moments of sharp reversals, generally caused by a sudden revision of interest rate expectations.
The question arises: does the market trust the Federal Reserve? The answer is not always yes.
A lowering of interest rates would theoretically stimulate an appreciation of Treasuries, which appear to have already begun to price in this eventuality.
At the moment, this scenario seems to correspond to a strengthening of the dollar.
It is no coincidence that, starting from the end of December 2023, the DXY index has undertaken a rather marked bullish path, which leads many to think of something more significant than a simple correction.
US Dollar: 2024 Forecast Lowering interest rates by a central bank generally results in the currency of the country in question depreciating.
However, although Treasuries have started to consider this possibility, no official decision from the Federal Reserve has yet been announced.
Meanwhile, statements have emerged from Davos suggesting a "higher for longer" approach, especially from European Central Bank officials.
This represents a strong dissonance compared to the views expressed by Jerome Powell, but it seems to have significantly influenced the stock markets in this period, as can be observed from the EUR/USD exchange rate.
After reaching the 1.11 level, the exchange rate fell below 1.09, exactly reflecting these expectations.
This evidence is also confirmed by the Fed Watch Tool, which in one month went from predicting a probability of 14.5% for a rate range between 500 and 525 basis points, to only 2.6% today.