On Wednesday, the dollar index, after 5 days of strengthening, renewed 16-month highs above 96.2.
The U.S. currency has not traded at such a high level since July 17, 2020.
The dollar hit its highest level since March 2017 against the yen and a 16-month high against the euro on Wednesday, breaking key resistance levels after a series of strong economic data raised expectations of an earlier Federal Reserve interest rate hike. ...
The market is currently assessing the likelihood of a Fed rate hike in June 2022 with a subsequent rate hike in November.
On Tuesday, St. Louis Fed President James Bullard spoke in favor of accelerating the process of normalizing monetary policy, saying that, in his opinion, the bank should go in a "tougher direction."
“Traders and investors should focus on the idea of a US monetary policy reversal that has historically triggered a 6-12 month rally in the dollar. Three of them are already over, ”say GravityPlus analysts.
Bank of America expects that the US dollar will continue to rally due to the Fed's policy, which will be forced to fight inflation, writes ProFinance. US consumer prices are rising at the fastest pace in three decades, and the Fed may have to admit that much of this growth reflects an overheating economy.
According to Mizuho, the dollar should remain strong in the first half of 2022, as real yields in the United States, i.e. nominal, adjusted for inflation, will remain higher compared to yields in the eurozone.
According to the bank UBS, next year the dollar will rise against the euro, yen and Swiss franc. The Fed is ahead of other leading global central banks in terms of tightening monetary policy. In addition, the slowdown in global economic growth favors the dollar against the currencies of more export-oriented countries such as the eurozone and Japan.
The US dollar may fall in 2022 as the Fed is unlikely to raise rates as the market expects, TD Securities reported. The Fed may refrain from raising rates until the end of 2023, given that growth in the US is likely to slow next year.