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Dollar Expected to Post a Big Monthly Gain

The expectation that the Federal Reserve will tighten monetary policy further in order to lower high inflation caused the dollar index to remain stable near 112 on Friday after falling from a 20-year high of 114.778 earlier this week. Despite this, the index was still on track to post another strong monthly gain.

The index is trading roughly 7% higher for the quarter and has gained approximately 3% so far this month.

Despite worries about GDP and market volatility, Fed members repeated this week that the central bank must raise interest rates to restrictive levels in order to combat persistent inflationary pressures.

Given that the US economy is stronger than those of other industrialized nations, the dollar also benefited from a surge in the demand for safe-haven assets.

The euro rose after a hot German inflation report boosted expectations that the European Central Bank will tighten more, while the dollar had some volatility early in the week as the pound recovered as worries about the UK’s fiscal plans subsided.