So say GaveKal:
For the last five years, the US dollar has been strong, supported by:
- A tightening relative liquidity environment, as the Federal Reserve ended quantitative easing, raised short term rates and began to contract its balance sheet. Meanwhile, other big central banks—notably the European Central Bank, which in 2015 embarked on its own program of QE—remained in full-blown easing mode.
- Favorable relative growth differentials, as the US outperformed other developed economies, an outperformance assisted by 2018’s tax cuts and deregulation.
- The outperformance of the US stock market, which has attracted capital.
- Trade tensions and international political uncertainties. The trade war has been broadly US dollar-supportive as the exchange rate has adjusted to tariffs and international investors have sought refuge in the US because of its relatively low exposure to trade. Uncertainties over Brexit and European politics have also helped.
Now some of these tailwinds are abating, and others are even reversing.
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