The US dollar as the top performer in 2023 and 2024. So far, 2025 is much the same as the US dollar surges to start the year. It’s up more than 1% against the euro and pound and is outshining every other major currency.
In terms of economic news, there wasn’t much today aside from a holiday-skewed but solid initial jobless claims report and softish data on construction spending and manufacturing sentiment. Those weren’t market movers and Treasury yields are only fractionally higher.
So what gives?
It’s all about capital flows. The US economy is strong but that’s well known and it isn’t the main driver. It’s capital flows. The network effects around US assets are snowballing as US equity markets vastly outperform. We’re at the point where major capital formation almost exclusively happens in US dollars and US markets. In addition, dollar-denominated derivatives dominate and spreads are far tighter in a world that’s using far too much leverage.
I think there is a big opportunity when the tide turns. The best-performing equity market in the world last year was Argentina after President Milei took a chainsaw to the bureaucratic state. There are other countries that will follow that path and may get similar results, at least initially.
The short answer is that right now the US and US companies are not just winning, but they’re running up the score. The risk is that tariffs or fiscal hawks could ruin the party but for now the market isn’t afraid of a Republican Congress.
This now-classic clip of Ross Gerber illustrates the sentiment.
