Yan Art on the record-high DXY: ‘There were no prerequisites’

Dollar index reached 110 points

For the first time since 10 November 2022, the dollar index (DXY) exceeded 110 points. Such growth was possible due to the strong US employment data published on Friday, which worsened the prospects for the Federal Reserve System (FRS) to cut interest rates this year. This is reported by RBC.

As of 12.27 Moscow time, the DXY index rose by 0.48%, reaching 110.176 points. By 13.45 Moscow time, growth slowed to 0.34%, and the index amounted to 110.018 points. The DXY index measures the value of the US dollar against a basket of major trading partner currencies, including the euro, Japanese yen and British pound.

The dollar continued to strengthen after the release of employment data, which contributed to its growth against other currencies. On Monday, it reached a two-year record of $1.0208 per euro and $1.2123 per pound sterling. Markets are already pricing in just one Fed rate cut in 2025.

The dollar has been strengthening since Donald Trump won the US election. His policies, including the introduction of export tariffs and tax cuts, are expected to fuel inflation. This could further limit the prospects for a rate cut by the US Federal Reserve.

“A rare case on the market”

At the same time, as financial expert and member of the Commission on Banks and Banking Activities in the Russian Union of Industrialists and Entrepreneurs, PhD in Economics Yan Art told Realnoe Vremya, there were no prerequisites for such a significant growth of the dollar index.

“There were no prerequisites. The fact is that the ideology of Trumponomics 2.0 (Editor’s note: the policy of the Trump administration after his second victory in the elections) should be aimed at strengthening the dollar against other currencies, since this stimulates the export of American products. And suddenly we saw a dissonance between Trump's declared policy — the return of production to the USA — and a strong dollar, which clearly contradicts this,” he explained.

This dissonance, according to him, can be explained by two reasons:

• Donald Trump's statements prompted American investors to invest in gold and cash: “For them, they are a kind of refuge just in case, because the ongoing world conflicts scare them away.”
• Inflation in the USA is rising again, while the labour market is doing well. This allows the Fed to slow down the rate cut: “Accordingly, while the Fed is cutting the rate extremely slowly, other regulators are cutting the rate more vigorously. There is a difference between the more profitable dollar and other currencies.”

As for the consequences, this will lead to a decrease in activity on the stock market and investor concerns for the American economy, Art believes. For these reasons, economic development may also slow down.

“On the Russian market, such a high index contributes to the devaluation of the ruble. At the same time, we can expect that a decrease in the index will also reduce the rate of devaluation this year. The likelihood that in 2025 the yield on ruble deposits will continue to outpace the devaluation of the ruble against the dollar remains. And this is good,” the expert added.

In general, the source believes that further growth of the dollar index is unlikely:

“For me, such a level is something abnormal. Therefore, it seems to me that this is already the peak, the index cannot grow further. But then everything will depend on the following actions: the inauguration, the first decisions in office. Even more will depend on the inflation data for January and either on the next decision of the Fed, or on their rhetoric. It is difficult for me to imagine the dollar index at 115 points, but everything happens for the first time. I think that until the end of winter it will remain at the current level.”