This time, given divergent monetary paths (mainly the QE programmes in Europe and Japan), a US rate hike is expected to be followed by a US dollar appreciation, given that foreign capital will take advantage of more attractive yields driving the US currency higher and also given the US dollar’s role as a safe haven currency.
This will further tighten policy since a higher exchange rate will reduce the price of imports and hence inflation. Indeed, since early January, the US dollar appreciated against the euro by more than 7% € $ from 1.20 to 1.12), while it appreciated against the yen by 4% (from 119 to 124) and the British pound by 3% (from 0.64 to 0.66).