Dollar Outlook

The U.S. dollar has come back strongly. After losing nearly 10% in 2017 and an additional 4% in January, the U.S. Dollar Index has rallied more than 5% off of its February lows [Figure 1]. Gains have been driven by several factors, particularly rising U.S. interest rates, partially due to increasing Federal Reserve (Fed) rate hike expectations, and repatriation of overseas profits as prescribed by the new U.S. tax law. Weakness in emerging market (EM) currencies as a result of several flare-ups in trouble spots such as Turkey and Argentina, along with the populist wave in Italy, have added to support for the dollar. The dollar is important for many reasons, including its impact on international trade and on overseas corporate profits. So, where does the dollar go from here?

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