Rate hike effects
If you are buying dollars on the expectation that there is going to be a rate hike by the Federal Reserve that is a position that is not going to work out for anything other than a quick trade.
Think back to all the dollar selling when the Fed engaged in its extraordinary measures like zero-percent interest rates and Quantitative Easing. While the dollar fell initially, it was only being pushed lower by sellers who believed the the low rates and asset purchases would lead to inflation. Some even said hyperinflation.
Of course that never happened. In fact the opposite happened: we saw a collapse in inflation pressures and the dollar embarked on an eight-year rally from 2008 to 2016.
The same will be true in the current situation only it will produce the exact opposite effect with the rate hikes. Rate hikes may cause portfolio buying of dollars, but those are the same misinformed traders and investors who sold the dollar in the past thinking there would be inflation.
Rate hikes and rate cuts are nothing more than price adjustments--price setting. When the Fed hikes rates that constitutes a price hike. It's a hike in the cost of credit and that trickles down to nearly all prices in the economy. Price increases are inflationary and in an inflationary environment the foreign exchange market reflects that as a lower foreign exchange value for the currency. (Inflation means you get less for your money and that means the exchange value of the currency is lowered.)
Rate cuts are the opposite. The cuts were price reductions--deflationary--and that is reflected in a higher exchange value of the currency: you get higher purchasing power; more for your money.
The rate hikes that the Fed is currently embarking on will lead to a long-term decline in the dollar or, at least a decline for as long as the Fed will continue raising rates.
The thing to remember is that each time the Fed raises rates it increases inflation and that will show up in the economic data and they will respond by raising rates some more creating a cycle of rising prices, rising inflation and a falling dollar.
The bottom line is, buy the dollar now and risk not making money unless you get out right away. The big money will be made on the short side.