The relation of interest rates, inflation and USD.

The DXY topped out in September 2022, inflation topped out in June 2022 and interest rates continue to hike!

A quick summary on the relation of these 3 macro components!

When inflation is trending up due to an introduction of new money into the economy by central banks (quantitative easing), not long after you will realize that interest rates start to rise.

What is the relation of interest rates and inflation?
Interest rates are the lever central banks pull when inflation gets above the target of 2%, they pull this lever to reduce spending in the economy. This in turn creates less money for people to spend as home loan serviceability goes up and that creates less money competing for the same products, driving prices down.

Where does the DXY fit in all of this?
The DXY is the $USD indexed against all other currencies, its a gauge to see how strong the US dollar is on the global stage. When interest rates start to rise it creates an attractive yield in the $USD, as the dollar soars everything traded against it suffers.
$USD bonds and interest rate products become sought after, this all creates buying pressure on the $USD and it becomes a safe haven for investors globally.

OK, so if interest rates up = DXY up, how come DXY has been down trending for 6+ months whilst interest rates continue to hike?
This is because markets are forward thinking, aggressive rate rises have speculated to be halting (last rise was 0.25%). They must begin to be more careful with how much they rise rates, if they are to aggressive rising rates it could cause a recession.