ABN AMRO: Federal Reserve may hike four times next year

The greenback appeared set to keep flexing its muscles, with the potential for the U.S. Federal Reserve to increase interest rates more than expected, said Roy Teo, senior foreign-exchange strategist at ABN AMRO Bank.

"Right now, if you look at Fed fund futures, slightly more than two rate hikes are already priced in so potentially we could see a bit of room for the dollar to recover," Teo told CNBC's "Street Signs" on Friday.

Teo said he expected three rate hikes this year, in line with the Fed's guidance, but he added, "There's some market speculation that they may be slightly behind the curve [and] may even move up to four."

The dollar has already surged in the wake of Donald Trump's surprise election win in the U.S. and as the Fed surprised markets at its meeting last week by indicating it would likely hike rates three times next year, a faster rate of tightening than the widely expected two times.

As was widely expected, the Fed also increased interest rates for only the second time in a decade, hiking by 25 basis points to a target range of 0.5 to 0.75 percent.

Trump's rhetoric on the campaign trail, including promises of substantial infrastructure projects, appeared set to boost the government's deficit spending, likely sending U.S. interest rates and inflation higher, which would further goose the dollar.

The U.S. dollar index, which measures the greenback against a basket of currencies, has surged to as high as 103.65 on Tuesday, according to Reuters data, its highest since December 2002. At 12:25 p.m. HK/SIN, the dollar index was at 103.040