After hitting a 20-year high, the U.S. dollar is weakening fast
, the dollar's rally — it was up nearly 19% at one point — is tied to the aggressive interest rate hikes the Fed imposed to try to rein in inflation.. But some of the most important drivers are known on Wall Street as "interest rate differentials." These are basically the gaps between interest rates imposed by central banks in different countries.
When a central bank in one country is raising its monetary policy rates and a central bank in another country is not, the former's higher rates act as a magnet pulling capital into that country's currency. In other words, a currency usually gets stronger when that nation's central bank is on a hiking spree.Over the last couple months, the dollar started to tumble on news suggesting the Fed might not keep raising rates as fast as it has been., when U.S. inflation data was weaker than previously expected., when Fed chair Jerome Powell seemed to hint that the central bank would shrink the size of its next rate hike to a half-percentage point.
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