Key points

  • US exceptionalism has been a theme that was emphasised through the COVID-19 pandemic. It showed that the US authorities have privileges most others do not and that the US can implement policy positions that ordinarily would lead to disastrous consequences such as hyperinflation. The US deployed this privileged position to great effect, and the result has been a resilient economy that has withstood the monetary tightening everyone thought would be impossible.
  • The US has enjoyed a virtuous cycle that has encouraged flows into the US, generated strong GDP growth given the circumstances and resulted in a USD that has outlasted virtually all the bearish forecasts. However, when one understands some of the factors that have helped generate this result, one can’t help but feel uneasy at the thought that some of these drivers might not extend much beyond 2024.

Baseline view

While US exceptionalism has bolstered the USD’s performance for now, some of the drivers of the strength in the USD and the US economy will fade as the year unfolds. Paying attention to these drivers is of critical importance in understanding when the dynamics for the USD-ZAR and domestic interest rates might change. The second half of 2024 holds many potential risks for the US economy and the USD.