The dollar index is up nearly 3 percent since the election of Donald Trump and is about 3 percent higher against the euro. It is sharply higher against emerging market currencies. For instance, it is up 8 percent against the Brazilian real. The Mexican peso has slumped 11 percent against the dollar since the election, on concerns that a Trump administration will ditch the NAFTA trade pact and be tough on illegal immigrants.
The greenback is moving higher with U.S. Treasury yields, which have broken out of their 2016 range. The market is eyeing the possibility of more U.S. growth and inflation, on Trump's promise of a hefty infrastructure package and tax cuts. But there are still many unknowns including how hard a line Trump will take on NAFTA and more broadly on trade.
"Definitely we think the dollar probably has a bit more room to appreciate versus the emerging market currencies, probably versus the euro but not necessarily versus the yen," said Andres Jaime, foreign exchange strategist at Barclays.
"For emerging markets, it's very clear after Trump's victory we have seen some re-pricing, with EM currencies going down on the view that anti-globalization, anti-trade would hurt the outlook for emerging markets, some of them heavily dependent on global trade and others that have relatively weak external accounts outlooks."
The rising dollar and rising rates makes debt payments more burdensome for dollar-denominated EM debt. The euro was at 1.068 Wednesday afternoon and was last at parity with the dollar 14 years ago. Thin said if it breaks that level, the next target is sharply lower at 85.65 to the dollar.
The dollar was already heading higher on the idea the Fed would hike rates next month, but the election of Trump helped push that trade forward. Fed officials over the past week have also been pointing to December for a rate hike, as Fed Chair Janet Yellen might when she testifies Thursday before Congress.
"I think people are coming back to the idea that the [European Central Bank] will expand [quantitative easing]," said Thin. The rising U.S. yields have pulled global sovereign yields higher. The German 10-year bund yield has moved higher and the Japanese 10-year actually moved into positive territory.
"You've got the monetary policy story. You've got rising inflation. That's there too. People are thinking the next wave of populism is going to be Europe," said Thin. "You've got the monetary policy story and the political story conspiring to strengthen the dollar and weaken the euro."
The euro could be pressured by politics on the continent and the Brexit talks with the U.K. The Italian constitutional referendum is Dec. 4 and the market is also looking forward to French and German elections next year. In France, candidate Marine Le Pen has at one point said France should leave the euro.
Jaime said Japan is isolated from those concerns, and the yen is unlikely to decline against the dollar as much as other currencies. He also said Japan has stopped trying to defend the yen as much as it had been.
The dollar index was above 100 Wednesday, at 100.44 in late trading. Its closing high from 2015 was 100.33. Dollar/yen was at 109.10.
The dollar has been flat most of this year, but rose sharply in 2015. The concern is too much of a rally in the dollar would hurt corporate earnings, dampen U.S. exports, and impose serious damage on emerging economies.
"Something that we do know is (some) of the main developed markets are moving toward a less integrated world. If you think that the emerging markets are the ones that have benefited the most from that, then the scenario is not one that would help emerging markets," said Jaime.
The market is also watching who Trump will name as Treasury Secretary. One rumored candidate, Steve Mnuchin, CEO and co-founder of Dune Capital Management, would be welcomed by the currency market because of his Wall Street background, Thin said. The market also reacted positively last week when JPMorgan CEO Jamie Dimon was reported to be under consideration. Dimon has previously said he's not interested in the post.