Thomas Mathews, an economist at Capital Macro, said that while the US's foreign assets and large current account deficit suggest that the dollar is "somewhat" overvalued, the dollar is likely to rise further in the next 6-12 months.

Mathews wrote in a research note on Friday that the rise in the dollar benefited from a faster rise in U.S. yields than in other advanced economies, which is expected to continue, which in turn will push the dollar higher further.

The dollar index hit a high for the year on Thursday, reflecting the boost of safe-haven demand amid economic uncertainty caused by the spread of the Delta mutant strain.

Comparing the dollar's real effective exchange rate today with its long-term average suggests that the dollar is a bit overvalued, Mathews wrote.

For example, the non-oil trade deficit has now reached the level of the mid-2000s. At the time, this led to a sharp fall in the dollar, "Mathews wrote.

While we are relieved by the view that the dollar will continue to appreciate over the next 6-12 months, thanks to a favorable shift in interest rate spreads, we suspect that the dollar will fall in the longer term.