Anyone looking for the dollar to surge after the Federal Reserve lifts interest rates has a short memory.

The U.S. currency strengthened an average of almost 9 percent during the six to nine months prior to the past three rate-rise cycles. After that, it's been a downhill ride, with the six-month drop averaging about 6 percent.

``The assumption that the dollar has to go up as the Fed tightens is not borne out by history,'' David Kelly, chief global strategist at JPMorgan Chase & Co.'s JPMorgan Funds unit, said in a phone interview. ``It does tend to go up in advance of an actual rate hike, but it's one of those cases where people buy the rumor and sell the fact.''

The Fed is planning to increase interest rates this year for the first time in almost a decade. That's propelled the U.S. currency, spurring hedge funds and other large speculators to pile into positions that would profit from further strength.

 Dollar Rally

 The Bloomberg Spot Dollar Index, which tracks the greenback versus 10 major peers, is up 6.8 percent this year. The currency is forecast to strengthen to $1.06 per euro and 125 yen by the end of the year, according to Bloomberg surveys of analysts.

Officials increased rates by an average 2.25 percentage points during the first year of previous rate-increase patterns. This time, policy makers are targeting a federal funds rate of just 1.625 percent by the end of 2016, with officials using phrases including ``crawling,'' ``gradual'' and ``steady'' to set the tone. China's devaluation of the yuan this week may slow that pace further.

That means a dollar letdown may be more pronounced this time with Fed officials planning to shun the aggressive tightening of the 1994, 1999 and 2004 cycles. U.S. economic growth has been uneven and inflation remains well below the Fed's 2 percent target amid slowing global growth and plunging commodities prices.

 ``A lot of the rate dynamic is priced in,'' said Nick Kalivas, a senior equity product strategist at Invesco PowerShares, which has about $97 billion of assets in its funds. ``Pace really plays into it,'' he said from Downers Grove, Illinois.

Downward Bias

The dollar fell 9.3 percent in the six months following 2004's first rate increase, even as the Fed tightened another 100 basis points, , according to the Intercontinental Exchange Inc.'s U.S. Dollar Index, which tracks the currency against six major peers. The same pattern holds for 1994, when the measure slumped 6.9 percent, and for 1999, when it lost 1 percent.

However, the backdrop for a potential rate increase looks different this time, according to Adam Cole, London-based head of global foreign-exchange strategy at Royal Bank of Canada. All tightening cycles are different and market reaction depends on why the Fed is raising rates, as well as the global context, he wrote in a note Aug. 7. The bank is dollar bullish ``in moderation.''

 With central banks from China and Australia to Europe and Japan cutting rates, buying-bonds and massaging exchange rates, the U.S. recovery looks solid by comparison.

U.S. two-year notes yield more than comparable-maturity government securities from 18 developed nations, according to data compiled by Bloomberg. An increase in yields, spurred by a central-bank rate increase, would further enhance the allure of dollar-denominated debt.

Traders are pricing in a 46 percent probability that the Fed will raise interest rates in September, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.

``After the announcement really comes out, we may have a dollar selloff,'' said Kevin Chen, chief investment officer of Three Mountain Capital Management LP, a New York-based hedge fund that manages $15 million. ``A lot of the Fed actions are going to be in the price.''