According to currency analysts, the recent comeback in the US dollar may not be a new broad trend. They said that the currency markets will see a lot of volatility in the short run.

Therefore, it is difficult to decide the path of the greenback in the next few months. In January, the US dollar had already recorded losses of 1.5%.

The recovery

However, the currency was able to recover those losses after the jobs market data published on Friday, showed a strong labor market.

It cast doubt on the market expectations of the Federal Reserve to loosen its monetary policy by the end of the year.

On Monday, Raphael Bostic, the president of the Atlanta Federal Reserve, also cited the strong job gains in the previous month and said that they may have to hike rates more than expected.

Pricing of interest rate futures shows that the markets expect to see the fed funds rate reach its peak in July, just above 5.1%.

This is quite close to where the Federal Reserve itself sees its interest rates, as opposed to the expectations of less than 5% that had been priced in before the jobs data on Friday.

The volatility

Currency analysts said that this repricing would mean that there would be high volatility in the near term.

They said that the market would continue to be fickle because it would take some time for the view of the market to reconcile with that of the Federal Reserve.

It is unlikely to happen overnight, which means that there is going to be some volatility. Most analysts believe that the US dollar is likely to drop at a faster speed in the next few months.

This could be because of the dovish tone taken by the Fed’s chairman, Jerome Powell, in the news conference in the previous week as well as in his comments this week.

The expectations

Economists said that there could be some gains in the US dollar in the short run, particularly if the data continues to be stronger than expected and the US Fed delivers at least two more hikes.

It is now expected that the US central bank will indeed deliver two more interest rate hikes because of the stronger labor market data.

But, in the next 12 months, the US dollar is expected to record declines because the Fed will likely hit a pause in their hiking cycle after delivering two hikes.

Last month, the euro had climbed against the greenback by 1.5%, which has been the single currency’s best start to a year since 2018, but it has lost all those gains so far.

But, forecasts show that the common currency will strengthen from its existing level to trade higher in the next three months and rise as much as $1.11.

This prediction for the year-end is about 3.5% higher than the value of the currency on Tuesday at $1.07, which would be good for the currency.