Judging by the recent Fed’s actions, the US dollar may soon skyrocket. After a long period of zero interest rates, the regulator is planning to reduce the asset purchases program.
Markets have received nearly $4 trillion since the COVID-19 pandemic began amid the Fed’s beneficial asset purchase program. The Fed is currently injecting $120 billion into the markets each month. However, the rapid acceleration of inflation is changing the balance of power, and the FOMC members' votes were equally divided in October. Moreover, 3 out of 9 hawks want to raise the interest rate twice up to 0.5-0.75%. The voting results showed that the issue of interest rate hike is not relevant. Analysts are discussing the number of interest rate hikes. The majority of the Fed members stands for four rate hikes by 2023, though three months ago they backed only two hikes.
In case it occurs, the high-yielding currencies of emerging markets will be the first to be hurt by the US monetary policy tightening. The idea to borrow dollars with a low interest rate and invest them, for example, in rubles at 7% per annum may gradually become less beneficial: the US currency will gain on higher yields with reducing interest rate.
