The American investment bank JP Morgan said that the US dollar may grow further in the near future. Economists noted that the US Fed will provide the basis for the movement, promising to ensure multiple rate hikes over the next two years. In January, the Fed reported that the US economy had reached full employment and so, they needed to raise interest rates to fight inflation.
Daniel Hui, one of JPMorgan's analysts, said that the market should be ready for what is likely to be the forthcoming tight policy of the Fed. Respectively, the dollar index should make another increase.
If the rate is really raised up to 2.25% during the current year, then the US dollar may grow by 3%.
This calculation is based on historical bid ratios. JPMorgan also suggests some reassessment of interest rates around the rest of the world as American yields rise.
According to historical data, this 3% is also the average historical growth of the US dollar, which is usually observed 2-3 months from the time the Fed starts to raise the rate.
At the same time, JP Morgan economists warn about the negative sides of global growth due to the geopolitical increase in energy prices.
The US dollar would clearly benefit from this as other currencies with high growth sensitivity had to pull back.
Currency strategists from the US investment bank also said that if they start to raise interest rates higher than expected, they expect to sell the euro and yen against the US dollar since they will be higher compared to interest rates in the Euro area and Japan.
"The market will continue to be driven by two forces – policy divergences with a focus on the Fed and higher commodity prices. But, as is now evident, the geopolitical environment has also become an important risk factor." Daniel Hui said.
