The US dollar was able to rebound to a certain extent after months of decreases as the Federal Reserve raised interest rates another time last week, although at a slower pace. While inflation is slowing faster than previously anticipated, the latest data on the US job market introduced some doubts about the next steps of the US central bank.

While the institution has sought to fight inflation by compressing demand, stronger purchasing power could fuel inflationary pressures and lead the central bank to keep interest rates higher for longer. This in turn could support the dollar over the medium term.

The improving outlook for the US economy has also boosted sentiment among investors. The prospect of a softer slowdown could make the US an attractive destination for investments, in particular as other regions like Europe could be hit harder.

Additionally, the risks of increasing tensions between the US and China following the discovery of the suspected spy balloon could draw investors toward the safety of the US dollar. This trend could exacerbate if tensions flare up. The US and China have already been at odds during the last few months while the US tried to limit China’s access to cutting-edge chip technology.

However, this positive impetus could be dampened over the medium term in particular against the euro if the European Central Bank maintains its elevated pace of interest hikes in the future.