Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Dollar likely to rise, but rally will lose steam later in 2021, Forum says

EconomyMar 25, 2021 05:45AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: U.S. one hundred dollar notes are seen in this picture illustration

By Divya Chowdhury and Lisa Pauline Mattackal

(Reuters) - Economic growth and higher bond yields will keep the U.S. dollar stronger for now, but the rally will lose steam later in 2021 because of a dovish Federal Reserve and rising fiscal deficit in the United States, economists and strategists said.

The dollar rally will be mitigated in the coming months because the Fed's extraordinary monetary policy won't result in sustained inflation, they told the Reuters Global Markets Forum.

Fed officials have said the central bank will ignore the price pressures expected to accumulate in coming months and let the economy run "hot" to encourage more hiring.

"The most likely outcome is that after a spring peak (of) around 3.5% for headline CPI and 2.5% for core PCE, inflation will fall back, while remaining above 2% for longer than at any other time over the past decade," said Gregory Daco, chief U.S. economist at Oxford Economics.

Graphic: Fed sees strong economy, low rates Fed sees strong economy, low rates -

The risk of inflation spiralling out of control was limited because rising prices would in turn restrain demand, and the Fed can eventually rely on its toolkit, including forward guidance and yield-curve control, to control runaway prices.

"The inflation we are seeing is not wage/price spiral stagnation inflation, it is recovery inflation and transitory," said Jeffrey Halley, senior market analyst for Asia Pacific at OANDA.

Halley expected the dollar to end the year lower, with the Japanese yen topping out at 112.00 to the dollar. It is currently at 108.99.

There is a real possibility that bond yields will keep rising, but the Fed doesn't have to raise interest rates to combat it, said Kristina Hooper, chief global market strategist at Invesco.

"Operation Twist is most likely," Hooper said, adding that she expected the Fed to act only if markets became "disorderly" when the 10-year yield reaches 2%.

The benchmark U.S. 10-year yield is currently at 1.6191%. US10YT=RR

"But if the 10-year yield rises to even 3% and markets are able to digest the rise in yields, then the Fed will not step in," she said.

Eric Freedman, CIO at U.S. Bank Wealth Management, likened the communication between the markets and the Fed to "the game of Marco Polo," where markets sell bonds and wait to see if the Fed is worried about that interest rate level.

Freedman said rates would have to move higher and more abruptly for the Fed to get concerned.

(These interviews were conducted in the Reuters Global Markets Forum, a chat room hosted on the Refinitiv Messenger platform. Sign up here to join GMF:

Dollar likely to rise, but rally will lose steam later in 2021, Forum says

Related Articles

Pound Dips Despite Hawkish BoE Talk
Pound Dips Despite Hawkish BoE Talk By - Oct 18, 2021

By Sam Boughedda — On Monday, the pound dipped against most other major currencies, notwithstanding hawkish talk from the BoE and banks saying they see a hike in...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Alan Rice
Alan Rice Mar 25, 2021 12:16PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
28 Trillion arguments AGAINST a stronger Buck: The Current National Debt.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email