The U.S. dollar, long stuck in a tight trading range, could be in for a break higher as the Federal Reserve shifts its focus to fighting worrisome signs that inflation is heating up.
In the first half of last year, the dollar slumped nearly 11%. Since then, it has settled into a narrow trading range, frustrating both those anticipating deeper losses and those hoping for a meaningful rebound.(.DXY)
Investors are eager to get the dollar's direction right, given the currency's pivotal role in global finance.
A softer dollar lifts profits for U.S. exporters by raising the value of repatriated foreign revenues. It also makes international assets more appealing to U.S. investors, who reap a currency tailwind on top of underlying asset returns.
The opposite is true when the U.S. currency strengthens. Imports from foreign countries can be cheaper in dollars unless tariffs are high enough to make up for it, while investments in other countries would return less when converted into dollars.
"If oil prices stay high and the Fed signals it's tightening, you could see the dollar strengthen further," said Thierry Wizman, global FX & rates strategist at Macquarie Group.
Source : Investing.com