Analysts expect dollar strength to continue after Fed move

Johanna Chua of Citi says investors are likely to persist with long US dollar strategies against emerging market currencies, reloading these trades in the instances where they prematurely took profits, and joining the consensus where they were previously skeptical or were merely waiting for better entry levels.

Although there remains considerable uncertainty about President-elect Donald Trump's tax and trade policies, investors are likely to take comfort in the belief that that the majority of likely scenarios offer continued support to the dollar, she feels.

After the US Federal Reserve raised interest rate by 25 basis points and anticipated three hikes each in next three years, the US dollar strengthened across the board, its index hitting the highest level in nearly 14 years, further weighing on oil and other commodities priced in the US currency.

Eric Fishwick of CLSA says rate expectations for end-2017 have risen but the market does not yet fully discount three rate increases in 2017. The market therefore remains more 'dovish than the dots chart' though the gap is closing.

He says he shifted from a forecast of two rate increases in 2017 to three (taking the Fed funds rate to a 1.25- 1.50 percent range by year-end) as central case.

A strong dollar is today's most crowded trade but that does not necessarily make it wrong. The short end of the curve still has some way to steepen and this implies continued USD gains, Fishwick says.