Three reasons why USD is still the king of currencies – CIBC

On a trade-weighted basis, the USD has been consolidating over the past month. With the Fed's QE tapering expected to end in mid-2022, rate hikes will quickly commence, and markets should start to price in more from the Federal Reserve post-2022, helping the dollar to maintain its dominance, according to economists at CIBC Capital Markets.

Green light for the greenback as Fed enters steep tapering cycle

“We are still circumspect with the degree to which the smaller DM central banks are being priced for next year, and would expect that corrective moves there should buttress the USD even more in the quarters ahead.”

“The Fed has begun to taper its monthly asset purchases. We are still of the view that the additional supply for the market will lead to higher nominal yields in the long-end and further support the USD.”

“Extant positioning in the FX market still implies that the USD is already the favoured long. This represents a risk to our view in the near-term. Nonetheless, positioning in the FX market is generally a tactical theme and we would still view any USD weakness as an opportunity to layer into opportunistic hedges, especially for those that are adversely impacted by a stronger USD over the long-term.”