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Why is the dollar so strong now? Expectation of continued monetary tightening in the U.S.

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why is the dollar so strong now

Why is the dollar so strong now? The dollar is rising against other major world currencies Thursday morning as markets continue to assess the U.S. Federal Reserve’s (Fed) policy outlook, trading data showed.

The euro-dollar exchange rate is down to $0.9973 from the previous close of $0.9977, while the dollar-yen exchange rate is up to 143.36 yen from 143.15 yen. And the dollar index (the exchange rate against a basket of currencies from six U.S. trading partners) is up 0.04%, to 109.71 points.

Why is the dollar so strong now? 

The U.S. annual inflation data for August showed that consumer price growth slowed weaker than expected – to 8.3% from 8.5%, and this statistic strengthened expectations of a more “hawkish” Federal Reserve policy, which is positive for the dollar.

After the release of inflation data, some experts began to lay down an increase in the Fed’s discount rate by 1 percentage point at once. According to the CME Group, 30% of experts are laying odds on that, while the rest continue to expect an increase of 0.75 percentage points.

“Investors remain very cautious about the possibility of excessive monetary tightening in the U.S.,” Agence France-Presse quoted analysts at Okasan Online Securities as saying.

The next Fed meeting is scheduled for Sept. 20-21.

Earlier, we reported that gold prices remain stable today as the market awaits U.S. inflation data.

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