Why the U.S. dollar is soaring — and what’s next — after Fed’s change in tone

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The U.S. dollar was on fire Thursday, extending gains a day after an unexpected shift in the Federal Reserve’s inflation and interest-rate outlook and raising doubts about the consensus view for a weaker currency in 2021.

“Up until yesterday the market consensus was pointing to a moderately softer value of the DXY dollar index over the course of the coming 2 quarters,” said Jane Foley, senior FX strategist at Rabobank, in a note. “The price activity in the USD (U.S. dollar) crosses today suggests that a revaluation of positioning is currently taking place.”

The ICE U.S. Dollar Index
DXY,
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a measure of the currency against a basket of six major rivals, was up 0.9% at 91.94 Thursday afternoon, after trading at its highest since April 13. The dollar is building on a surge versus major rivals scored on Wednesday, after Fed policy makers penciled in two rate hikes by the end of 2023 and discussed the…

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