With annual inflation hitting a June peak of 9.1% in the U.S., the Federal Reserve has adopted a hawkish policy this year and raised the federal funds rate six times this year. The most recent hike raised interest rates to 3.75%-4% which sent stock markets tumbling upon the news. Besides sending stock markets lower, rising rates have other net effects which include the strengthening of the U.S. dollar. How does this happen? When U.S. interest rates rise, U.S. Treasury bonds and bills become more attractive to investors due to their higher yield. Since U.S. bonds and bills are denominated in U.S. dollars, this leads to higher demand for U.S. dollars from international investors which thereby appreciates the currency. We can see all this playing out now. Year-to-date, the U.S. dollar has strengthened significantly against other major currencies in the world. U.S. dollar exchange rate against major currencies. Source: YCharts...