The U.S. dollar may have weakened somewhat on Wednesday after Fed Chair Janet Yellen's more-dovish-than-expected comments tempered expectations for a rate hike as early as June. But the greenback quickly recovered on Thursday as investors digested the news.
The dollar index is up around 9 percent year to date after rising nearly 13 percent last year amid speculation that a recovery in the U.S. economy would lead the Fed to raise rates.
"The U.S. dollar is in a cyclical bull market," said ANZ senior FX strategist Sam Tuck over the phone. Capital is flowing into the dollar because "the U.S. economy is relatively strong, and interest rates are set to rise and remain higher than anywhere else in the developed world."
According to Goldman Sachs, the dovish statement from the U.S. Federal Reserve on Wednesday was but a small setback for the U.S. dollar. Goldman expects the greenback to extend its rally against emerging market currencies.
"Federal Reserve dovishness may provide some near-term respite, but on a 12-month basis we think that some of the factors arguing for EM currency weakness, such as current account imbalances, commodity price weakness and low inflation, are still present in varying degrees," Goldman said in a note published on Friday.
Analyst agree that the need to adjust to lower oil prices, slowing global growth and the euro's recent tumble against the dollar, will continue to pressure emerging market currencies.