Why the dollar’s wrecking- ball rally is not done yet

A rally that has the dollar on course for its best year since 1984 has further to run, traders and analysts say, suggesting more pain almost everywhere else as other currencies either crumble or require rapid rate hikes to stay put.

The rise – the dollar is up nearly 15percent against a basket of currencies this year – has already been a wrecking ball through foreign exchange markets, crushing the euro and yen to twodecade lows and sterling to its lowest in nearly 40 years.

Tuesday’s surprisingly hot US inflation data led the latest surge as investors price in larger and faster US rate rises in response and are even speculating the Federal Reserve could hike by a full percentage point next week. That sort of outlook, and the backing for the dollar in markets, is a direct challenge to global central banks, who face a choice between watching their local currencies weaken, or slowing the process by either selling dollars or raising rates, risking a sharp slowdown in economic growth.

“I don’t think there is anything that can stop the dollar,” said Rabobank strategist Michael Every, as long as US rates are rising. “There will be intermittent phases where the market might try to delude itself and pretend what is happening isn’t happening,” he said. “( But) we see the dollar significantly stronger by year- end.”