The dollar had a strong performance in May and ended the month with the biggest gains in six months, since November.
The greenback’s rally against nearly all of the major currencies, was helped by the hawkish shift in sentiment from Fed policymakers in recent weeks.
Many officials on the Fed’s policy-setting board, including chair Janet Yellen, have indicated that the US economy is probably strong enough to withstand a rate rise as early as this summer. The US jobs market was heading closer to full employment and the Fed hopes that inflation will move closer to the its target in coming months.
According to Fed Chair Janet Yellen: “It’s appropriate — and I’ve said this in the past — for the Fed to gradually and cautiously increase our overnight interest rate over time.”
“And probably in the coming months such a move would be appropriate,” Ms Yellen said last Friday.
The more bullish economic outlook suggests rates in the US may begin to diverge from many other developed-market countries that are expected to hold rates at low, or even negative levels in an attempt to boost inflation.
This will result in a stronger US dollar against these countries. For example, the ECB is not expected to raise rates anytime soon, which will keep the euro lower against the dollar.
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