the us dollar is flexing its muscles as surging inflation is seen pressing the federal reserve to move further ahead of its major central bank peers when it comes to tightening monetary policy and the outlook for rates could set up a “sort of a winwin” situation for greenback bulls according to one strategist the ice us dollar index dxy  a measure of the currency against a basket of six major rivals rose 05 to hit the latest in a series of nearly 16month highs as it trades at levels last seen in july 2020 the index is up 14 for the month and more than 6 in 2021 defying consensus forecasts at the end of last year for an extended slide those recent gains have come as shortterm rates have jumped with the yield on the 2year treasury note tmubmusd02y ending friday at its highest level since march 2020 as it posted its largest weekly rise in more than two years higher yields relative to major peers makes the dollar more attractive to yieldhungry investors read aroundtheclock currency market may be in for greater volatility as inflation concerns reverberate economist says longdated treasury yields have moved largely sideways with the yield curve flattening a move analysts say reflects worries the fed will be forced to move aggressively to rein in inflation potentially sparking an economic downturn the two scenarios “of either front end rates rising or back end rates rising are both good for the usd” said brad bechtel global head of fx at jefferies in a note referring to the us dollar and noting that real or inflationadjusted yields remain low across the yield curve “real rates remain extremely low in both front and back end and any sort of repricing higher here will result in more tailwind for the usd the usd also is likely to continue rising on both the idea that the us is leading the path on the recovery trade and likely to attract inflows related to safe haven bids during periods of risk reduction” he wrote “sort of a winwin for the usd” the euro eurusd  which accounts for 576 of the dxy was down 06 versus the dollar near 11382 a loss of 15 this month while the european central bank faces a december decision on what to do with its pandemic emergency purchase program it has adopted a dovish stance though ecb president christine lagarde has at times struggled to tamp down rising rate expectations us rates have extended their premium over eurozone counterparts the dollar was up 01 versus the japanese currency usdjpy at 11405 yen the british pound gbpusd traded at 1342 near a 10month low having fallen around 2 this month after the bank of england failed to deliver a widely anticipated rate increase see powell steers markets through fed decision as international counterparts struggle the fed earlier this month announced plans to begin scaling back its monthly asset purchases and is on pace to wind down the program by mid2022 traders meanwhile have pushed up expectations for rate increases next year while the fed has signaled it sees room to remain “patient” when it comes to liftoff market expectations for more aggressive tightening were boosted last week after the october consumer price index jumped to a yearoveryear reading of 62 a nearly 31year high meanwhile the “only scenario where the usd might lag is if we get a catchup from the rest of the world” bechtel wrote “i could see somewhere down the road an inflection point where inflation settles and all the rate hikes in em emerging markets attract inflows that suddenly reverses course from some emfx but we are not there yet” but javier corominas director of macro strategy at oxford economics is penciling in a scenario where the us growth advantage over its peers begins to gradually diminish in line with the firm’s forecasts in that case “the dollar is very likely to top out in the coming months and renew what we expect is going to be a multiyear downward adjustment” he wrote “indeed if we stack up the dollar reer real effective exchange rate against relative businesscycle dynamics then the trend measured as the real gdp growth differential between the us and other advanced economies is still unfavorable to the greenback” he said