US banking giants predict stronger dollar, end of Fed rate cuts

Goldman Sachs and Bank of America, two of the largest banks in the United States, have shared their insights on the U.S. dollar and Federal Reserve interest rates, highlighting a stronger U.S. dollar.

Goldman Sachs strategists pointed to the implementation of new tariffs and the U.S. economy’s continued growth trajectory as reasons for their forecast of a 5% rise in the dollar in 2025.

The bank predicts that the euro-to-dollar exchange rate will drop to parity within three months and reach 0.97 within six months.

Earlier this week, the dollar gained momentum following the release of U.S. non-farm payroll data.

Meanwhile, the euro fell to $1.0208, its lowest level since November 2022.

In the U.K. persistently high inflation and growing concerns over the budget deficit led Goldman Sachs to revise its six-month pound-to-dollar forecast from 1.32 to 1.22.

A break to interest rate cuts

According to analysts at the Bank of America, the Federal Reserve’s rate-cutting cycle has officially ended, driven by a stronger-than-expected economy and labor market.

This perspective followed a U.S. Labor Department report showing payrolls rose by 256,000 in December, significantly surpassing the 155,000 estimate, and marking an increase from November’s 212,000.

The unemployment rate also exceeded expectations, dropping from 4.2% to 4.1%.

“Considering the resilience of the labor market, we now believe the Fed’s cutting cycle has concluded. Inflation remains above target, and risks are tilted to the upside. Economic activity is robust, and we see little justification for further easing,” Bank of America stated.