The case for a stronger USD is more compelling against the low-yielding G10 currencies of the EUR, CHF and JPY where market participants are more comfortable that their central banks will keep rates low despite high inflation.

The Fed is beginning to express serious concern over the risk that high inflation could hit the economy hard. It provides a reason for the Fed to start trimming QE from next month and completely stop it by mid-next year. That, in turn, will open the second half of next year for the Fed to start raising rates if the higher inflation continues to persist in policymakers who currently believe in it.

The US stock market has already gone up in this situation as two 25bps rises now priced to 2022 followed by another three 25bps rise in 2023. It continues to put high pressure on the US economy.

Support for the USD from higher US yields has been reduced so far this month by the rise of global investor sentiment, and the same rise in interest rates outside the US on average in other G10 economies. As a result, yield spreads have not favored the dollar.