Central banks’ likely readiness to embark on the most synchronized interest rate cuts since 2008 is likely to support the dollar in 2024. Despite early-year expectations, the dollar has surged by over 2% this quarter, outperforming most of its major counterparts.

The dollar’s performance reflects both a recalibration of bets on the extent of Fed cuts and the realization that the United States will not act in isolation. Among the 11 major central banks worldwide, including the Fed, ten are expected to cut rates in the second half of this year as global growth weakens, marking the most synchronized policy easing cycle in 16 years.

One of the few exceptions is the Bank of Japan, which has just raised its rates and ended modern history’s most aggressive monetary stimulus program. That said, this decision also warns that financial conditions will remain accommodative for the time being.

According to empirical research, the dollar has gained more than 3% on average each quarter when 80% or more of these central banks have eased their policies in tandem. The Fed’s policy rate is expected to remain the highest among major developed economies behind that of New Zealand by the end of this year.

The seemingly contrarian outlook of a resurgence in the greenback could become more realistic as the world’s largest economy appears resilient enough to avoid a recession, forcing markets to lower their expectations for aggressive monetary easing. Favourable factors for the dollar include its yield premium and a still robust U.S. stock market that continues attracting capital inflows. It is very difficult to be bearish on the dollar when witnessing the level of economic resilience of the U.S. economy.

However, dollar bears remain the dominant voice in the market. Since 2017, asset managers have been clinging to the bet that the dollar will decline, increasing the risk of a sharp reversal if these bets go wrong. The history of the American exception is hard to ignore, especially when the world is in a fuzzy period where expected political and geopolitical events could alter the current situation. The November American election is foremost among them.