The year 2024 has marked a significant turning point in the realm of global finance, with the U.Sdollar index emerging as a formidable powerhouse amidst the shifting dynamics of international currenciesThroughout the year, the dollar has seen a remarkable increase of nearly 7%, even as the Federal Reserve has systematically reduced interest rates by a total of 100 basis pointsAs we stepped into 2025, the strong momentum of the dollar does not appear to wane; just this January, the index breached the critical 109 level, maintaining its strength around the 108 mark, which represents an increase of over 2% since its previous low in December of the past year.

Several analysts attribute the dollar's robust performance to the comparative advantage of the U.Seconomy along with favorable projections for interest ratesFollowing recent trends, the Construction Bank’s Financial Market Department noted that one factor bolstering the dollar is the resilience of the U.S

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job marketJust last week, the total number of initial jobless claims fell to an eight-month low, reducing the market’s expectations for any further interest rate cutsIn contrast, fundamental indicators from other economies, particularly within the Eurozone and the United Kingdom, are showing signs of weakness, thereby reinforcing the dollar's dominant position.

The implications of a strong dollar have been significant, particularly for non-U.Scurrencies, especially those in AsiaCountries such as Indonesia, Vietnam, India, Japan, and South Korea have been grappling with extraordinary devaluation pressuresFor instance, Bloomberg's Asian currency index plummeted to a record low of 89.0409, the lowest since 2006. Furthermore, the Japanese yen has succumbed to continuous depreciation, dropping below the 158 threshold against the dollar on January 7. The Indian rupee lingers near all-time lows, recently trading at 85.7033.

In the face of currency volatility, several nations have made declarations to stabilize their exchange rates

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Notably, Japan’s officials have signaled currency intervention for the first time in 2025, expressing concerns about sudden, one-sided market movementsRecently, Finance Minister Kato Katsunobu voiced his apprehensions regarding the yen’s ongoing weakness, largely influenced by speculative tradingLast year alone, the Bank of Japan intervened multiple times in the foreign exchange market, with the most recent actions occurring in July 2024 when the yen fell below the 160 levelAs the yen fluctuates near this threshold once more, speculation about potential interventions is expected to intensify.

Among emerging economies, Indonesia has faced its own currency battlesSince November 2023, the Indonesian rupiah has repeatedly tested the critical benchmark of 16,000 against the dollarIn response, Bank Indonesia swiftly announced emergency measures to "rescue the market," pledging to uphold confidence in the foreign exchange market

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In December, the central bank decided to maintain its benchmark interest rate, emphasizing that the objective of its monetary policy is to reinforce the stability of the rupiah in light of the uncertainty surrounding U.Spolicy directions and aggravating geopolitical tensions that affect the global economyGoing forward, Bank Indonesia suggested that while it is contemplating the potential for monetary easing, it remains vigilant regarding fluctuations in the rupiah’s exchange rate and emerging economic circumstances.

Looking ahead, the global market remains clouded by uncertainties linked to the Federal Reserve’s interest rate trajectory and expectations regarding U.Sgovernment policiesProjections for 2025 largely foresee a continued strong dollar, but it’s crucial to note that the anticipated policy frameworks have already been factored into current market valuations

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Hence, the threshold for the dollar index to sustain further upward movement is significantly elevated, indicating that short-term fluctuations will warrant close attention.

On Monday, the dollar index experienced a considerable drop, briefly declining by over 1%—marking the most significant single-day decrease since November of the previous yearNon-U.Scurrencies took this opportunity to rebound and recover from their prior lows.

Strategists from Dongwu Securities’ overseas team have indicated that the robust dollar is likely to exert continuous pressure on other currencies throughout 2025. They anticipate that despite the U.Smaintaining strong economic performance, investment returns, and tariff implications, the dollar is expected to maintain its strengthHowever, there might be variations in this trend; specifically, in the first half of the year, as the Fed continues to lower rates and the impact of the government policies on the economy and inflation has yet to be fully realized, the dollar is not expected to appreciate substantially, remaining in the strong range of 100 to 105.

This team has outlined how other currencies will likely face widespread pressure under the influence of a strong dollar