The U.S. dollar had a strong start to 2024. Here’s why it’s unlikely to last.

The dollar has risen as traders scale back their expectations on when the Federal Reserve will begin cutting interest rates this year, according to analysts at BofA Global Research. 

As recently as late December, traders were pricing a likelihood as high as 90% for a rate cut in March — but those chances have since fallen to around 46% as of Friday, according to the CME FedWatch Tool. Meanwhile, the total amount of rate cuts priced in for this year, which reached as high as 170 basis points in mid-January, has now slipped to around 135 to 150 basis points.

However, the greenback is likely to see depreciation throughout the rest of this year, analysts at the investment bank wrote in a Thursday note, adding that much of the retreat would likely happen in the second half of 2024.

The BofA analysts said expect no recession this year and anticipate that the Federal Reserve will start cutting its key policy rate in March. Such a scenario is negative for the dollar, as the Fed’s easing would likely support risk assets with U.S. economic growth remaining resilient, according to the analysts.

Based on historical data, the ICE U.S. Dollar Index’s performance has been mixed from the onset of the Fed’s first rate cut over the past six cycles, and has been relatively flat on average over the following quarters, the analysts said.

“This is due in large part to the USD’s perceived ‘safe haven’ status and its negative correlation to risk, as cutting cycles have often been associated with recessions,” they wrote.

Jonathan Petersen, senior market economist at Capital Economics, echoed that point in a Thursday note. He expects the dollar to face headwinds from strong risk appetite in global markets and falling bond yields in the U.S. over the course of the year, and anticipates the greenback will remain rangebound against most major currencies for most of 2024.