Anticipating the path of foreign exchange rates in recent years often culminated in an exercise in frustration. When it seemed that momentum was building behind G10 and EM currencies, the U.S. dollar regained, or maintained, its dominance in the global FX market. However, we see mounting indications that global currencies may have an expanding window to gradually appreciate vs. the dollar over the long term.
A stark dichotomy in global monetary policies was evident between 2014 and 2019. The Federal Reserve’s balance sheet (as a % of GDP) peaked in mid-2014 shortly before its most recent rate-hiking cycle, while other major central banks generally remained in policy-easing mode.
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