Why has the U.S. dollar strengthened?

Understanding currency movements is important since they can affect everything from investment returns to inflation and economic growth. Here are some key factors to consider:

• Recent changes to trade policy and tariffs by the Trump administration have strengthened the dollar. While the situation is still evolving, fewer potential imports means less selling of the dollar to buy foreign currencies.

• The Federal Reserve's benchmark interest rate remains elevated at 4.25-4.50% as of February 2025, making U.S. dollar-denominated assets relatively attractive to global investors seeking higher yields.

• The U.S. economy continues to demonstrate remarkable resilience, with GDP growth of 2.3% in Q4 2024 and a healthy labor market showing unemployment at just 4.0%, well below the historical average.

• Inflation has moderated to 2.9%, indicating better price stability compared to other major economies, which helps maintain confidence in the U.S. dollar as a store of value.

The included chart shows how the U.S. dollar has performed against major global currencies over the past several years, highlighting its role as a key reserve currency and safe haven during periods of uncertainty.

While currency markets can be volatile in the short term, maintaining a diversified, long-term investment approach remains the best strategy for most investors regardless of currency movements.

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