Dollar to outperform other major currencies this year

Wed Mar 5, 2014 11:29am EST
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By Rahul Karunakar

BANGALORE (Reuters) - The dollar will easily outperform other major currencies in the coming year, according to foreign exchange strategists polled by Reuters, driven by demand for U.S. assets prompted by a shift in Federal Reserve policy.

After cutting its $85 billion of monthly asset purchases by $10 billion twice since December, the Fed has clearly signaled its intentions of closing its quantitative easing programme this year.

That initially led to a sell-off in emerging markets and has driven expectations for the Fed to raise interest rates in the second half of next year. <FED/R>

Wednesday's poll of over 60 analysts conducted March 3-5, showed the dollar set to gain against the euro, yen and sterling over the next 12 months.

"Real interest rates in the U.S. are going to rise and that is going to certainly decrease the (capital) flow outside of the U.S. into other economies," said Geoffrey Yu, a currency strategist at UBS.

"We have seen that trend in emerging markets already and are going to see it in other economies as well."

The poll showed the euro holding around $1.36 in a month's time, just shy of Wednesday trading level around $1.37. It is expected to weaken over the next year - to $1.34 in three months, and $1.28 in 12.

Similarly, the yen was forecast to hold near 102 per U.S. dollar in a month, and then weaken to 104 in three months and 110 in a year.   Continued...

A picture illustration shows a 100 Dollar banknote laying on one Dollar banknotes, taken in Warsaw, January 13, 2011. REUTERS/Kacper Pempel