InvestorQ : Do higher Fed rates mean a stronger dollar?
Arti Chavan made post

Do higher Fed rates mean a stronger dollar?

Answer
user profile image
Shreya Karn answered.
2 years ago


One of the obvious outcomes of a rate hike would be a further strengthening of the dollar. If you look at the dollar index over the last one year, the DXY has already appreciated from a level of 81 to 103 before settling below the 100 mark. A rate hike could once again take the DXY above the 100 mark. A weak rupee will be negative for India in two ways. Imports will get costlier and this is a serious problem since India runs an annual trade deficit in excess of $125 billion. A weak dollar will also force FPIs to delay their India portfolio investments since it makes a lot more sense to invest in rupee assets closer to the bottom.