USD Strength to Endure in 2015

For all the talk of renewed currency wars, the policy-driven depreciations that have dominated foreign exchange markets since the summer could until now as easily have been described as a benign global conspiracy to restore the dollar’s primacy.

Fresh injections of stimulus by the European Central Bank and Bank of Japan sent the euro and yen tumbling to multiyear lows against the greenback — helping their fight against deflation. Policy makers in Australia and New Zealand welcomed the dollar’s rise after struggling with overvalued currencies for years. Many emerging markets were content to live with weaker currencies that helped their economies rebalance.

Nor did US politicians object: instead, they appeared to tacitly endorse ECB president Mario Draghi’s assertion that “the exchange rate is the product of monetary policies that are on a diverging path . . . because of the different economic conditions”.

But now, the combination of a stronger dollar and sliding oil price is causing mayhem — pushing Russia’s rouble into free fall and spreading to relatively robust emerging markets, while investors flee to the safety of the yen and Swiss franc.

Even the dollar has suffered in the past week, giving ground to the traditional haven currencies, but few investors think it will stall for long, with the theme of monetary divergence likely to remain dominant in currency markets in 2015.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza
Alfonso Esparza

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