ORLANDO, Florida (Reuters) - While the dollar has benefited enormously this year from the tech-led wave of U.S. "exceptionalism" that has lifted American growth, productivity, profits and stock prices, the greenback has also gotten a huge helping hand from its crisis-prone rivals.
Unforeseen political and economic events have drawn investors toward the safety of the dollar throughout the year. Just look at the political chaos that erupted seemingly out of nowhere in South Korea on Tuesday, slamming the won to a two-year low and, at one point, putting it on track for its worst day in eight years.
True, the won may only be the 12th-most traded currency in the world, involved in barely 2% of average daily foreign exchange turnover. But South Korea is Asia's fourth-largest economy and the wave of volatility that crashed over its FX and equity markets, forcing emergency action from Seoul to maintain financial stability, has darkened the cloud over emerging markets more broadly.
That's especially true for Asia, where fears of tariffs from the incoming administration of U.S. President-elect Donald Trump have also pushed China's yuan to its lowest point this year.
"It's safe to say that few analysts on Jan. 1 would have had martial law in South Korea on their 2024 bingo cards."
It's doubtful they had anemic growth in the euro zone or China sleepwalking into deflation; Canada's sluggish growth prompting deep interest rate cuts; Japan's yen slumping; and fiscal fears affecting Brazil's real.
The old FX market maxim that the dollar is the "cleanest dirty shirt" in the currency laundry basket has been borne out by events over this last year.
Consider that even as foreigners plowed record amounts into U.S. stocks this year and with a cautious Federal Reserve approach to cutting interest rates than anticipated—a tailwind for dollar strength—the dollar index is up only 5% against G10 peers.
"Given all of that, one might have expected the greenback to have appreciated more this year than it did."
The question looking forward is whether it can shine on its own merits next year amidst potential recoveries elsewhere which could challenge its dominance.