The dollar index rebounded from its lowest level in over a week to around 103.60, with the market pricing in the chances of an increasingly hawkish Federal Reserve stance to keep a lid on the highest inflation in decades. Fed Chair Powell said the central bank would not hesitate to keep raising interest rates until inflation returns to the 2% target, even if it involves moving past broadly understood neutral levels.
The greenback saw some downward pressure recently as the recent relief rally across equities and signs of progress in China’s effort to bring coronavirus outbreaks under control dented investors’ appetite for the safe-haven currency. On top of that, evidence grows that other major central banks, particularly the ECB and the Bank of England, would be forced to act more aggressively to tame record inflation.