Dollar Historically Drops After Fed Hikes

History is not on the dollar’s side. In the last couple of decades, the dollar index .DXY, which measures the greenback against a basket of six currencies, has fallen every time the Federal Reserve has begun a cycle of interest rate hikes.

The Fed likely to hike on Dec. 16 for the first time in almost a decade and many big banks, including Goldman Sachs and Morgan Stanley, think the dollar uptrend that began in the second half of 2014 remains intact.

Speculators are holding huge bets in its favor, given the U.S. economy is outperforming its peers and the Fed is the only major central bank set to raise rates. On Thursday, the European Central Bank is likely to lower rates deeper into negative territory and expand its asset purchase program.

A Reuters poll published on Wednesday showed 40 of 60 strategists pointed to more dollar upside in the coming year.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza