According to leading foreign exchange analysts the US Dollar, which has already had a bullish start to the year, could continue to strengthen against the majority of its most traded currency rivals.
The US Dollar Exchange Rate was trading in the region of 0.7748 against the Euro as of 14:35pm GMT
Over the past few weeks the ‘Greenback’ has been supported by several factors:
Firstly, the US economic outlook has been boosted by a stream of positive data. In the past two weeks alone US employment figures have exceeded expectations, retail sales advanced to a five month high and industrial output expanded by more than forecast.
Secondly, several developments in the Eurozone have repeatedly turned investors from high-risk assets. No sooner had the market calmed following the inconclusive Italian election than the Cyprus concerns began, and these issues, when viewed in conjunction with several negative data releases for the 17-nation currency bloc, have sparked a resurgence of fears in the Eurozone’s economic stability. All these factors have been weighing on the Euro.
Thirdly, the ever increasing odds of the Bank of Japan adopting more aggressive stimulus methods in order to bring an end to deflation have caused the Yen, traditionally viewed as a safe-haven asset, to broadly soften over the past several months.
Now Haruhiko Kuroda has taken the reins of the Japanese central bank stimulus could be increased within a manner of weeks, a circumstance which is likely to trigger additional Yen declines. And lastly, the still lingering threat of an unprecedented triple-dip recession in the Eurozone has kept the Pound pressurised. In this currency climate the US Dollar is outperforming its rivals, and if things continue the ‘Greenback’ could experience a shift. As Forex.com research director Kathleen Brooks explains: ‘We are most excited about a potential shift in the Dollar, from being a safe haven to a growth currency.
We expect the USD/JPY uptrend to continue, although this quarter the dominating factor is expected to be developments in the US and at the Fed, rather than at the Bank of Japan. We think USD/JPY could get to 100.00. In Q2 we also expect EUR/USD to grind back to the mid 1.20’s as a bullish case for the Euro gets harder to justify.
Although there are risks, particularly in Europe, the global growth outlook will be supported by a continued recovery in Japan and in the US, which is supportive of risk assets. But investors need to be on their guard as signs that Italy is being sucked into the sovereign crisis or a slowdown in China, could cause volatility to spike in the coming months.’
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