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Despite some decline during today's Asian session, the DXY dollar index is growing again at the beginning of the European session. At the time of writing, the DXY index was near 103.65, just below the local 2-year high 103.94 reached last week.
The Fed meeting starts today, which will end tomorrow with the publication (at 18:00 GMT) of the decision on the interest rate. It is widely expected that at this meeting the rate will be raised at once by 0.50%, to 1.00%. Market participants are also waiting for the leadership of the US central bank to announce a quantitative tightening program and determine the timing of the start of the reduction of its balance sheet, which is about $ 9 trillion.
Despite somewhat disappointing macro data recently received from the United States (according to preliminary data, in the first quarter of this year, US GDP fell by 1.4%, and the index of business activity in the US manufacturing sector in April fell to 55.4 from 57.1 and against forecast 57.6), according to economists, further strengthening of the dollar should be expected. They believe that growth in the US economy is more resilient than in other parts of the world, such as the Eurozone, while China's economic growth has been slowing of late and the country is reimposing hard lockdowns due to the coronavirus outbreak.
However, many economists believe that a sharp increase in rates could lead to a recession in the US economy. But these fears are unlikely to stop Fed officials from aggressively tightening monetary policy to contain the growth of inflation, which reached the levels of 40 years ago.
Thus, the increasing divergence of the curves reflecting the direction of the monetary policies of the Fed and other major world central banks will encourage purchases of the rising dollar. Most likely, DXY may soon exceed the level of 104.00 and continue to grow.
