The reaction of the Fed funds futures market showed relatively muted optimism, with the read across from market levels indicating odds of 23 percent for a March hike, versus 16 percent earlier in the day, and a jump in expectations for a May hike to 50 percent from 38 percent, according to investment bank Jefferies.
While the upwards move in the dollar makes sense in the context of the latest news from the Fed, the near-term outlook for the dollar is uncertain given the conflicting force of President Donald Trump's anticipated economic policies, Richard Falkenhäll, senior FX strategist at SEB, told CNBC Wednesday via emailed comments.
As the new administration is likely to turn more expansionary due to lower taxes, the Fed may be propelled to tighten policy more rapidly, he suggests. This in addition to other potential changes such as the introduction of a border adjustment tax and a reduction of earnings retained from overseas should also be positive for the dollar, posits Falkenhäll.
"On the other hand, the Trump administration seems to prefer a weaker dollar and the behavior of the president since the inauguration probably motivates a political risk premium on the USD for now," he countered.
Indeed, Halper-Hayes cites President Trump's and Treasury Secretary Steve Mnuchin's attempts to talk down the dollar as one of her primary concerns.
"They don't believe in holding to the strong dollar policy … How are they going to abandon the strong dollar policy? If that happens what is that going to do? I see corporate earnings for global corporations, it would be very good but on the other hand what is it going to do to the domestic economy?" she asked, spelling out her apprehensions.
The ongoing debate over the dollar's strength follows an international flare-up last month, during which Peter Navarro, Trump's selected director of the National Trade Council, accused Germany of exploiting other countries by keeping the euro "grossly undervalued". Although Germany robustly defended the independence of the rate-setting European Central Bank (ECB), many commentators – including Germany's own Finance Minister Wolfgang Schäuble - did agree that the exchange rate was too low for Europe's largest economy.