US Dollar Index hits 2-Year high as other G5 currencies decline; Naira and Cedi remain stable Nexovant

The US Dollar index hit a fresh high, closing above 107.74 points as of the market ending on the 18th of December 2024, attaining its strongest level in two years.

This follows the Fed’s decision to lower its benchmark policy rate by 25 basis points to the range of 4.50%, with indications of two additional cuts in 2025.

After the release, the U.S. dollar index, a key financial metric that measures the performance of the U.S. dollar against a basket of six major currencies, closed above 107 points, hitting its highest level since November 2022.

The euro, pound, and Swiss franc fell 1% against the US dollar during the day, while the offshore Chinese yuan fell to the lowest level since 2023.

While this might classically seem different from the reaction of the dollar to the rate cuts, which usually see it weakening, the dollar tracked by the dollar index strengthened from 106.64 points, hitting a fresh high of 107.74.

However, while other major currencies seemed to decline after the strengthening of the dollar index, other exotic pairs like the naira and cedi have seemed unfazed, with both strengthening by 7.81% and 4.34% month-to-date, respectively.

Market trend of the dollar index

The US dollar index has risen by 6.65% year-to-date, signaling a moderately bullish trend since it climbed above 107 points in 2022.

It started January at 103 points, with a trading volume of 306,310 units, and reached 106 by April.
However, it experienced declines from May to September, dropping to a low of 100 points in September, with a trading volume of 435,935 units.
Since October, the index has consistently risen, surpassing 107 points and ending trading positively on December 18, 2024.

Naira unfazed

Despite Nigeria’s inflation rate climbing from 33.88% in October to 34.60% in November 2024, as reported by the NBS, the naira remains stable in the official market.

It continues to trade around the N1,560 mark against the dollar, contrasting with declines in other major G5 currencies amid the dollar’s recent strength.
According to a BofA analyst on the dollar strength, “We are first looking for continued dollar support for the next several months on the back of ongoing economic outperformance in the world’s largest economy.”

This aligns with discussions about efforts to strengthen the dollar, as emphasized by President Donald Trump, offering insights into current market trends.

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