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The Dollar Has Gained Momentum In a 16-Month High. But Wait, It Could Go Higher.

The dollar has shown signs of positive growth, thanks to the federal reserve it could go even higher.

Many analysts around the country are predicting that the federal reserve will have to raise interest rates sooner than later, which is a healthy measure taken to support the dollar.

Most expectations are for a first-rate hike in July—especially given the signs that U.S. inflation is gathering pace. consumer-price index (CPI) data last week showed inflation rising more than expected, with October marking the sixth straight month with year-over-year inflation above 5%.

“The prospect of earlier Fed tightening reduces the scope for sustained Dollar weakness over the coming months,” said a team of analysts led by Zach Pandl, the co-head of global foreign exchange at Goldman Sachs. “Unless U.S. inflation comes down more than expected, allowing the Fed to remain on hold for a lengthier period, prepare for a range-bound Dollar, especially vs. the euro.”

Others were outright bullish Bullish sentiment on the dollar. A team led by Mark Haefele, the chief investment officer at UBS Global Wealth Management, see the currency rising over the coming year, in large part due to likely rate hikes from the Fed, as well as slowing global growth—which favors the dollar—and a rise in real rates.

“We see further U.S. dollar strength ahead against the euro, Swiss franc, and Japanese yen, ” Haefele said. “We advise clients to position for a stronger dollar, with currency trades being one means of adding yield to portfolios.”

In the week ahead, retail sales data Tuesday could feed into the inflationary narrative and add more support to the greenback. Expectations are for retail sales to grow 1.3% month-over-month in October, above 0.7% growth in September.

The much-anticipated virtual summit between President Joe Biden and China’s Xi Jinping has also been constructive for the Chinese yuan, said Tiffany Wang, an emerging markets strategist at JPMorgan Chase. The yuan rose slightly Monday against the dollar but has moved steadily lower over the past weeks—down some 1.5% since August.

The dollar fell near 0.2% relative to the British pound Monday and rose more than 0.2% relative to the euro—remaining near 16-month highs for both.

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