Fed hiking rates may move dollar index to levels of 112.60 -113.30

Mumbai: The dollar index, which gauges the strength of greenback against the basket of six major currencies, is expected to remain in the range of 112.60-113.30, if the US Federal Reserve continues its tightening going forward, according to a report by Emkay Wealth Management.

“Given the resolution of the Fed to enhance the rates to contain inflation the likelihood of the index moving up to 112.60 -113.30 levels cannot be ruled out,” the report said.

The US is aggressively tightening rates to control inflation. The current stance of the US Fed and an aggressive action is being priced in swiftly by the markets. If the action on rates so far, and the signals from the Fed in the recent past is anything to go by, it can be safely concluded that the Fed’s hard money policy will prevail at least till the end of the year.

The US Dollar currency yield is going to rise faster relative to other currencies, and it is going to provide strength to the currency. The other factor that has helped the Dollar could be the slower responses by other countries to inflationary spiral through rate action which has created a lag in terms of the currency responses too.

The Dollar Index has been on an upswing, and the recent ranges have been 104.50 to 109.50, which has led to depreciation of rupee in the past few weeks. On the downside the strong support levels are at 106.40 and 104.50.

Image courtesy of thesatimes

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