The US dollar index (DXY) was observed to weaken slightly in today's trading, but still held within its highest range since the November 2020. 

The greenback's performance against the major currencies tends to be mixed. When the news was written at the start of the European session, the USD continued to pressure the euro.

It is especially at a 14-month low range below the range of 1.1570. The USD/JPY is corrected to the range of 111.30s, but the GBP/USD slipped below the 1.3600 threshold again.

The stronger USD currency is not surprising some of the market participants. Due to the changing situations so far, various different progresses can be happened. 

What Makes the Dollar Increase?

The several factors support the toughness of the USD so far in the market. First is the rising in energy commodity prices that triggered the energy crisis in the European continental. 

Second, there is a possibility of the United States central bank (The Fed) to raise the interest rates faster. That is especially if the inflation is entrenched for a longer period of time. 

Third, the ADP Non-farm Employment Change report showed the better-than-expected data. That is going to boost the market enthusiasm ahead of tomorrow's release of Non-farm Payroll.

The recent hawkish shift at the Fed, added with the continued dovish stance of the European Central Bank and the Bank of Japan should keep the dollar strong at least until the end of the year.

The High Energy Price May Affect that Currency

The statement above was said by Masayuki Kichikawa, the chief macro strategist at Sumitomo Mitsui Asset Management. Kichikawa also said the USD in its role as a safe haven would benefit from high energy prices.

It is also related to the concerns about China's continued economic slowdown throughout 2021. Meanwhile, the anxiety around the America’s debt limit that expires in mid-October is easing. 

Mitch McConnell as the Republican leader in the USA Senate, yesterday raised the idea. His party would allow an extension of the federal debt limit until December this year. 

A number of Democratic senators said that they would welcome the offer. That is even although the party and White House leaders have not disclosed their response.

The Extension may Loosen the Risks

This extension could loosen a number of risks on the upper side that threaten the USD in the short term. However, it will take a firmer agreement than just a delay to another time.

The aim is to remove the risk on the upper side of the USD. This opinion stayed by the commonwealth bank of Australia strategists in a note to clients. That must be highlighted. 

Elsewhere, The Reserve Bank of New Zealand (RBNZ) raised their interest rates from 0.25% to 0.50% at Wednesday's policy meeting. The rate hike decided by the RBNZ marks something.

It is especially the start of a cycle of monetary tightening that has been expected since Last August. The move was delayed due to the coronavirus outbreak, especially the delta variant. 

The Removal of Stimulus Is also Possible

That is which required the New Zealand government to implement a lockdown for several days or maybe weeks ahead. That institution also declares one more thing. 

In its monetary policy announcement, the RBNZ said that the removal of further monetary policy stimulus had also been expected. In fact, there is a possibility of a follow-up rate hike.

The most possible time is in November to cope with the rising inflation and sluggish housing markets. However, this also depends on the outlook for inflation and employment in the medium term.

As of October 2021, the government there has abandoned its zero-tolerance strategy (mandatory lockdown even though there is only one case of COVID) in dealing with the pandemic outbreak.