A lack of clarity on how the Fed is going to react to economic data releases coming out of the US is keeping the outlook for the US dollar highly uncertain even as the economy appears to be making rapid recovery from the pandemic-related crisis. In a recent Reuters poll, forex strategists offer mixed insights about the greenback’s moves in the near-term in absence of strong signals from central bank policymakers on when they could consider starting to taper stimulus measures.

During the first three months of the year, the US currency beat economists’ forecast for a period of weakness and strengthened by around 4% against other leading currencies, supported by President Biden’s fiscal stimulus measures and the rapid rollout of the COVID-19 vaccine. However, since the beginning of Q2, it has reversed almost all of its gains and weakened as US Treasury yields fell from multi-month highs.

During the previous session, the US dollar index was trading close to the lowest levels seen in five months, but has since picked up on the release of a strong private employment number. However, strong economic data releases have been unable to propel the greenback considerably as the focus remains on the Fed’s plans to tackle potential price rise.

Over the past several months, Fed officials have maintained that they have no plans of overturning their dovish plans until employment and inflation make a full recovery to pre-pandemic levels. However, the rapid pace of economic recovery has raised concerns of inflation shooting up, despite officials playing this down as temporary – something markets remain unconvinced about.