MUMBAI: According to a research by Emkay Wealth Management, if the US Federal Reserve continues its tightening going forward, the dollar index, which measures the strength of the greenback against a basket of six major currencies, is projected to remain in the range of 112.60-113.30.
The potential of the index increasing to levels between 112.60 and 113.30 cannot be ruled out, according to the research, given the Fed's determination to raise rates in order to control inflation.
To combat inflation, the US is aggressively tightening rates. The markets are quickly pricing in the present US Fed posture and an aggressive approach. It is safe to assume that the Fed's hard money policy will be in effect at least until the end of the year based on the Fed's recent signals and the action on rates thus far.
In comparison to other currencies, the US Dollar currency yield will increase more quickly, which will strengthen the US dollar. The other element that has benefited the dollar may be other nations' delayed rate action responses to the inflationary spiral, which has caused a lag in currency movements as well.
The Dollar Index has been rising, with recent ranges between 104.50 and 109.50, which has caused the rupee to weaken recently. Strong support levels on the downside are seen at 106.40 and 104.50.
It should be remembered, nonetheless, that the Index's movement depends on the Euro-Dollar exchange rate because the Euro has a bigger weight than the Dollar. Creeping inflation, exacerbated by the high cost of petrol and gas, is tearing Europe apart and is only going to get worse. Any significant rate changes from the ECB might take more time, and the euro may target its initial range of 0.75 to 0.80. This might give the Index some room to increase.
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