The dollar is one of the best performing currency this year. The dollar index has gained by more than 3.30% YTD. Most of these gains happened in the past one month when the index gained by 2.83%. The gains happened as optimism for more rate hikes gained steam, and as the US treasury yields surged.
During the month, the data on inflation and employment was softer than expected but did not seem to change the thinking of the Fed about future rate hikes. The Fed officials continue to believe that more rate hikes are appropriate.
At the same time, the yield curve continued to flatten. A key aspect about this was the rising of the 3-year treasury yield to cross the 3.0% level, which was lastly passed in 2014.
Further, most currencies in the index faced pressure. The yen lost after the BOJ officials removed language on future interest rates from their statement. It also lost after North Korea signaled that it would cooperate with the US and other allies to denuclearize. The Euro and the pound also faced pressure after dovish statements from the officials.
The dollar index is currently trading at $92.57. This trend may continue especially if the US inflation rate continues with the current momentum. On Monday, a key inflation metric reached the critical level of 2% which is also the Fed’s target. Today, markets will watch out for the ADP jobs numbers and the statement from the Fed. The numbers may lead the index further higher, potentially to the 93 level or lower to the 92 level.