Since the end of March, the stars have aligned in favour of a stronger USD. Economists at CIBC Capital Markets expect the greenback to remain on solid footing in the near-term as Federal Reserve leads peer central banks in tightening monetary policy.

Markets will reassess where the terminal interest rate for the Fed is being priced

“The USD will likely remain on solid ground in the coming months. That’s primarily because there doesn’t appear to be any let-up in the way long-end rates are moving, and the macro liquidity picture continues to point to a ‘risk off’ backdrop. The Fed is already quite hawkish, and the USD will find support against other currencies where policy settings are slower to adapt, or are outright divergent.” 

“Beyond the next few months, there’s enough baked into the USD to preclude a sustained rally from here. Indeed, we still envisage that markets will reassess where the terminal interest rate for the Fed is being priced which should leave the USD on the defensive a bit as other majors play catch up.”