On June 1st, U.S Dollar Index Up as Traders Price in More Hawkish Fed that may push it past its 20-year peak of 103.92 as they anticipated an increasingly aggressive Federal Reserve. Analysts expect them to raise rates 50 basis points at their next meeting on June 15. Moreover, some even predict an even larger 75 basis point increase indicating their commitment to fighting inflation. This would mark the largest rate increase since 1994 and demonstrate its seriousness about fighting it effectively.
Several factors are Driving the Dollar’s Strength
The Fed’s hawkish stance:
The Federal Reserve’s signals of intent to raise interest rates aggressively to combat inflation have made the dollar an appealing asset class for investors looking for safe-haven assets. This increased investor enthusiasm toward holding dollars
The strong U.S economy:
U.S economy remains healthy. Unemployment levels are at record lows. Investors looking for safe investments are finding comfort in investing in USD currency, which has such an effective foundation to make this currency even more appealing. Consequently, U.S Dollar Index Up as Traders Price in More Hawkish Fed.
Key factors that could Impact the Dollar in the coming Months
The rate of the interest rate hike:
On June 15, at its meeting at the end of June, it is widely expected that 50 basis points interest rates increase by the Federal Reserve. If inflation continues its upward trajectory beyond this amount, its pressure could result in additional rate hikes from them and force additional rate rises due to inflation forcing their hands.
If that occurs, then further strengthening could occur from inflation, forcing additional rate rises from them. Therefore, pushing U.S Dollar strength higher as their initial targets continue to be breached. Above all, further strengthening may come as inflation forces them out from under their initial targets forcing more rate rises from them than anticipated from them!
The performance of the U.S economy:
U.S economic activity remains strong; however, there have been signs that growth may slow. A recession would further weaken the dollar. Meanwhile, traders should monitor these factors closely and adapt their trading strategies as necessary.
Note: Keep in touch with Marvel Forex Education Centre. Here you can keep yourself up-to-date with Latest Forex News.