Dollar Strengthens Amid Expectations of US Interest Rate Hike
The US dollar has strengthened due to an interest rate policy divergence between the US and Europe. The Dollar Index is poised to rise for a second straight week as many expect the Federal Reserve to hike interest rates again this year.
Fed officials have hinted that an interest rate hike is on the table, which has led to increased yields on U.S. debt and a stronger dollar. This trend is expected to continue with the European Central Bank anticipated to enact one or more interest rate increases in 2023.
The EUR/USD pair has weakened due to energy costs and inflation contributing to a tightening monetary policy. The GBP/USD pair is also expected to weaken, especially with the Bank of England's current interest rates at 3.75% and an anticipated recession from tighter monetary policy.