The end of the U.S. rate-hike cycle?

The year 2005 has been a good one for the U.S. dollar. The greenback rallied sharply throughout the year, shrugging off a threeyear bear market. Many in the forex world point to the steady rate increases by the Federal Reserve throughout 2005 as a key factor sending the dollar spiraling higher, especially against the Euro.

With the U.S. fed funds rate at 4 percent after 12 consecutive rate hikes by the Federal Open Market Committee (FOMC) since June 2004, the key question for forex traders is how much higher can the funds rate go and what will it mean for the dollar?

The Fed steadily hiked rates throughout 2005 while most other central banks were holding monetary policy steady. This increased the attractiveness of the U.S. currency to global investors, as interest rate differentials shifted significantly in the dollar’s favor.