The US dollar just closed its biggest annual gain in almost ten years, fueled by Donald Trump’s tax cuts, tariffs, and a bullish American economy. Investors have jumped on the greenback as the Federal Reserve continues to signal steady interest rates while the rest of the world braces for deeper cuts.
The dollar index, which measures the greenback against six major currencies, climbed 6.6% this year. It saw an explosive 7.5% jump in the fourth quarter alone—the biggest quarterly leap since 2015. On Tuesday, the index ticked up 0.1% to 108.16.
The euro is down 0.2% to $1.0386, bleeding 6% for the year. The yen? Barely holding at 156.76 per dollar after a brutal beating. Even the pound, which held its ground better than most, only managed a meager 0.02% bump to $1.2551.
Analysts say Trump’s policies will keep the greenback strong well into 2025. Hedge funds and asset managers are already going all-in, betting $29.8 billion on the dollar’s rise—the most bullish stance since April.
Markets feel the dollar’s heat
While the dollar flexes, global markets are trying to catch their breath. On Wall Street, stocks managed a modest bounce after three days of losses thanks to high US Treasury yields. The Dow rose 112.81 points to close at 42,688.89.
The S&P 500 added 5.82 points, landing at 5,913.01. The Nasdaq slipped 21.86 points to 19,463.98. But despite a bumpy December, the S&P 500 posted a 24% gain for the year, its best two-year streak since the late ’90s.
Artificial intelligence (AI) hype, anticipated Fed rate cuts, and the pro-business vibes from Trump’s incoming administration lit a fire under equities. Energy stocks led the charge, with all 11 major sectors in the green by year-end.
It’s a Wall Street party, but the bond market is not invited. The 10-year Treasury yield briefly hit 4.641%, the highest since May, cooling some of the rally. The yield settled slightly lower at 4.527% on Tuesday but stayed above 4.5%, a level that makes traders squirm.
The international scene isn’t looking much better. Trading volumes were thin with European markets either closed or running half-day sessions for the New Year holiday. Germany, Italy, and Switzerland didn’t even show up.
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