BENGALURU : Most currencies will struggle to make any gains against the U.S. dollar in coming months, as monetary tightening expected from the Federal Reserve will provide the greenback with enough impetus to extend its dominance well into 2022, analysts said.
In the meantime the Fed, now expected by traders to raise interest rates in March and begin reducing its asset holdings soon afterward, will provide the dollar with an edge over other major currencies."There's been a lot of U.S. dollar strength of late, mainly driven by the widening interest rate differentials and inflation dynamics in the U.S. relative to other major markets like Japan and Europe," said Kerry Craig, global market strategist at JP Morgan Asset Management.
While the dollar's dominance is nearly universal, as in previous Fed tightening cycles, emerging market currencies are likely to feel it the most. Among the emerging currencies polled on, the tightly-controlled Chinese yuan was predicted to depreciate nearly 2per cent to 6.5 per dollar in a year. The Philippine peso, Malaysian ringgit and Indian rupee were also expected to weaken about 1per cent or at best cling to a range.