Rising inflation, plunging bond yields and the diminishing likelihood of tighter monetary policies in the near term have battered the U.S. dollar, causing it to lose ground against nearly all of its foreign peers.

With the Federal Reserve signaling that it has no plans to shift from near 0% rates and $120 billion in monthly securities purchases, currency analysts say further U.S. dollar weakness lies ahead.

"It is clear that a significant part of the market is worried that the rise in inflation is not going to be just temporary," said Francesco Pesole, a foreign exchange strategist at banking and financial services company ING, in an interview. "However, it is ultimately the Fed that holds the keys to short-term rate dynamics and their plan, for now, appears to be to stick to a very dovish rhetoric until they can."

Over the past year, the U.S. dollar has fallen against every G10 peer except the Japanese yen, which still trails the greenback.

The U.S. dollar has lost roughly 17.8% to the Norwegian krone and 16.2% to the New Zealand dollar.

It has also not fared any better against emerging-market currencies, falling 24% to the South African rand and 9.5% to the Brazilian real.

As of May 17, the Dow Jones FXCM Dollar Index was down 6.5% in a year. The index measures the U.S. dollar against a basket of four currencies: the euro, British pound, Japanese yen and Australian dollar. On Feb. 24, it fell to its lowest point since April 2018.

The index is down about 1.7% since the end of March as investors' appetite for risk has increased on continued, accommodative monetary policies, an improved economic outlook as vaccinations have increased, and climbing corporate earnings. The index has moved mostly opposite to equities, with the S&P 500 hitting record highs during the past year.

This "risk-on" view has driven equities to new highs but also drawn investors out of "safe haven" currencies, such as the U.S. dollar and the yen, said Marshall Gittler, head of investment research at investment firm BDSwiss Group.

Investors have moved into currencies "that have a higher beta to the global economy, notably the commodity currencies," Gittler said in an interview. "The recent stunning rise in commodity prices, of course, helps this along."

The key factor driving the dollar, however, remains bond yields, which have continued to decline.

"In order for any dollar rally to have legs, we need a further rise in U.S. yields," wrote Win Thin, global head of currency trading at private investment bank Brown Brothers Harriman, in a May 17 note.

Bond yields move counter to bond prices, and a U.S. Treasury yield rally indicates a positive outlook on the domestic economy.

Since the start of the year, the yield on the benchmark 10-year Treasury bond has risen 71 basis points to 1.64% on May 17 but 10 basis points below its 2021 peak. Meanwhile, the yields on inflation-protected bonds, also known as the real yield , remain deeply in negative territory.

The five-year real yield fell to a historic low of -1.91% on May 10, down 32 basis points from the start of the year. It settled at -1.88% on May 17, while the 10-year yield settled at -0.9%.

On May 12, the Bureau of Labor Statistics reported that the consumer price index rose 4.2% from a year earlier, well above economists' expectations. The core personal consumption expenditure price index, the Fed's preferred measure of inflation that strips out food and energy prices, hit 1.8% in March 2021, compared to the same month a year earlier, when the majority of U.S. pandemic lockdowns began. The index was up from 1.4% in February 2021, with core figures for April due out later in May.

Deeply negative real yields have become an "anchor" for U.S. dollar direction, according to Mazen Issa, a senior foreign-exchange strategist at TD Securities.

Loose Fed policy will likely keep real yields down, Issa said. With Fed officials viewing inflation signals as "transitory," and the most recent jobs report falling well below economists' expectations, that policy is unlikely to change.

"A rise in US real yields will take longer to manifest and likely keep the [U.S. dollar] in a soggy mood," Issa said.

And with the Fed, and other central bankers, in no hurry to halt their quantitative easing programs, dollar weakness appears likely to remain as negative real yields persist, ING's Pesole said.

"Unless the Fed starts to sound less dovish, real rates are set to be a negative factor for the dollar," he said.