U.S. dollar index hits more than two-year high as markets brace for Trump return

The U.S. dollar index hit its highest level for more than two years on Thursday, as the new trading year kicked off and investors geared up for the return of Donald Trump to the White House this month.

The gauge of the greenback against a basket of currencies was up 0.8% at 1:00 p.m. ET, at its strongest since November 2022.

Optimism around the U.S. economy was in focus as markets reopened following disrupted trade over Christmas and the New Year’s holiday. Wall Street stocks opened higher though later traded mixed.

“Already [U.S.] growth has kept outpacing forecasts as consumers and companies have shrugged off the impact of high interest rates, with the unemployment rate remaining low,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, said in a Thursday note.

“Investors are hopeful that a goldilocks scenario will be the story of 2025, amid promises of lower taxes and deregulation under a second Trump presidency.”

“The greenback continues to find support from expectations of USD-bullish Trump policies and fading conviction around the Fed’s rate-cut trajectory for 2025,” Mohamad Al-Saraf, FX and rates strategy associate at Danske Bank, said in a Thursday note.

Key data ahead in assessing the robustness of the U.S. macro narrative includes Thursday’s jobless claims and Friday’s ISM manufacturing report, along with next week’s nonfarm payrolls, Al-Saraf said.

He added that the euro was likely to fall back to U.S. dollar parity in the medium term. However, Al-Saraf said that market pricing for fewer than two quarter-point rate cuts this year may prove overly hawkish, and along with any negative U.S. data surprises could trigger a dollar correction.