The fundamental drivers of the dollar rally are still in place: better U.S. economic growth and a looming policy shift toward higher interest rates, at the same time that other countries are still languishing, facing deflationary threats and pumping easy monetary policy like quantitative easing into their economies to fight it.
"Overall, we expect the combination of a solid macro picture in the U.S., combined with central banks around the rest of the world generally easing policy, to translate into both a higher dollar and higher yields," wrote strategists at Bank of America Merrill Lynch led by David Woo.
This week is key.
After figures on personal income and spending and manufacturing Monday, carmakers will report auto sales Tuesday; ADP will release its monthly figures on private sector employment Wednesday; and the Labor Department will unveil its employment figures for February on Friday. Economists are looking for 235,000 jobs to have been created in February and a slightly lower unemployment rate.
"(Nonfarm payrolls) data is likely to confirm another solid month of job gains that will leave open the prospect of the Federal Reserve raising the federal funds rate for the first time since 2006," wrote Derek Halpenny, chief currency strategist at Bank of Tokyo Mitsubishi.
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In particular traders will be looking for continued improvement in wage growth that would help sway the Fed toward an interest rate increase sooner rather than later. In January, average hourly earnings rose 0.5 percent, and while economists are looking for continued gains, they're expecting 0.2 percent this time. A jobs report that confirms recent improvement across sectors, wages and growth will be key for dollar bulls.
"The employment reports are always important—but the next few reports will be crucial in determining whether market rates have to adjust sharply higher or the FOMC has to adjust its message to the markets on the timing of the first rate increase," Halpenny said.
To be sure, some dollar doubters may point to still sluggish wage growth and overall weak headline inflation figures that recently turned negative, to keep the Fed—and the dollar rally—on hold.
However, "Fed speakers have continued to point toward kicking off rate hikes this year. Especially given that oil prices have stabilized a bit, headline inflation is likely to revert back to positive territory, similar to the inflation experience during the financial crisis," according to BofA Merill Lynch.
Another concern for dollar bulls is the recent slowdown in the pace of economic growth compared with a burst of momentum late last year.
A string of recent data points—from gross domestic product to the Chicago purchasing managers index to pending home sales have disappointed.
Kit Juckes, Societe Generale's senior FX strategists wondered, "CFTC FX futures positioning data show the market remains very short of euro-dollar and hasn't really backed away from an outsized dollar long. And yet there is palpable nervousness about the U.S. data. Why is the market collectively both long dollars and nervous about the U.S. data?"
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The answer may be found outside the U.S., where economies are still underperforming the U.S. and central banks are launching new easing measures while the Fed is considering tightening.
This week is another busy one for global central banks.
The People's Bank of China kicked off the party this weekend lowering interest rates for a second time in a little more than three months. On Thursday, the European Central Bank formally launches its aggressive policy of asset purchases announced at the last meeting, while the Bank of England is expected to remain on hold.
Central banks in Australia and Canada also have decisions due out, with both recently surprising the markets by lowering interest rates to fight deflation and weaker growth. In a colorful note, George Goncalves, head of U.S. rates strategy at Nomura Securities said, "Don't Worry Be Happy," referring to all of the bank easing.
"Central bankers globally continue to want investors not to worry and to just buy risks assets (and be happy), so that even if their monetary policies diverge in the near future, they try to avoid being a source of disruption for markets."
For the currency market, a world in which the Fed is tilting toward tighter policy, that "happy" policy sends a clear sell signal for currencies whose central banks are easing. That's one reason why traders are currently holding bullish long futures positions on the dollar against all major currencies, according to weekly CFTC futures data.
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Recently though, dollar bulls have been disappointed to see the major pairs trading in tight ranges, after a multimonth rally. Scotiabank's chief FX strategist, Camilla Sutton, is looking for a breakout.
"At some point trading ranges will need to be broken, should it happen in unison (several currencies breaking out to the same direction within a day or two of each other) it will be an important signal for the broad U.S. dollar outlook"
For the euro-dollar, that would mean a drop below 1.1098 or on the flip side, a jump above 1.1542, according to Scotiabank.
Bottom line, despite a historic and sharp run-up already, pros say it's still a good bet to be buying the buck.