So far this week, the US dollar has rallied about 1.7 percent against the euro and strengthened nearly 2 percent against the Aussie and Kiwi.
The US dollar index (DXY) has the potential to close out the weekend with the best performing over the past few months. After being spurred on by the very hawkish announcement of the results of the FOMC meeting, the greenback is getting brighter following the release of the United States GDP data yesterday. At the time of writing, DXY is already perched at 97.39 levels - the highest record since July 2020.
Expectations surrounding the Fed's rate hikes are getting crazier. Some market participants are starting to speculate about a five or six chance of a "Fed rate hike" this year, more than previously expected of three to four. Inevitably, the USD exchange rate strengthened rapidly.
So far this week, the US dollar has rallied around 1.7 percent against the euro until EUR/USD tumbled at 1.1125 and hit a record low since June 2020. The greenback is also up nearly 2 percent against the Aussie and Kiwi, respectively. Only GBP/USD seems to have put the brakes on the downside, as the UK central bank (BoE) will most likely raise its interest rate in next week's meeting.
"Don't fight the Fed. Don't fight the market," said Terence Wu, analyst at OCBC Bank Singapore, as quoted by Reuters, "The dollar may rally towards its next target to the 97.70/00 zone on the DXY Index, (later) after that technical resistance is rare until close to 100.00. Antipodeans led losses against dollar year-to-date, expect euro and yen to follow suit. Remain negative on New Zealand dollar, euro and yen in upcoming sessions."
Meanwhile, a number of analysts began to warn to anticipate the possibility of a reversal in the longer term. The reason is not only the potential for disappointment if the realization of the "Fed rate hike" in the coming months turns out to be not as aggressive as the current forecast, but also global macro dynamics.
"The dollar is in an upward cycle and has room for further rally on support from interest rate differentials and rising levels of market volatility. But this is the last stage of the (up) move," said Kit Juckes of Societe Generale, "as the global economy bounces back from worst COVID pandemic of the year, market focus will shift towards policy normalization and growth outside the US, and the best currency performance in the second half of the year is likely to emerge from outside the major economies."
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