
TOKYO: Economic forecaster Oxford Economic (OE) says the strength of the US dollar is likely to continue this year and into 2025 before possibly falling back in 2026.
While the strength of the dollar is high, the OE believes that there is still room for further strengthening, partly because of a stronger economy compared with other G7 countries. The US economy has been helped as the country shifts into being a net energy exporter.
In 2023, the US outgrew the other G7 countries by 1.7 points, and over the last five years, the average outperformance has been at a similar rate. The US is expected to outgrow the other G7 countries by 2.1 points in 2024 and 0.3 points in 2025.
The belief that the dollar’s international usage is shrinking due to geopolitical factors is seen as “largely hype.” Its share of key international financial transactions remains high and stable across the board. The dollar has seen sharp gains against the Japanese yen and the Chinese renminbi.
OE believes the dollar is only around 6 percent overvalued at present, which it describes as “a fairly modest degree of overvaluation.”
Significant structural improvements in the US balance of payments in recent years have also helped the dollar. The most important of these has been the US’s shift to being a net energy exporter. In 2008, the US petroleum balance was minus $386 billion but this became positive in 2019, and in 2023, there was a surplus of $30 billion. Crucially, this meant the global energy price shock in 2022–2023 was a dollar positive while being strongly negative for most other advanced economies.