“The dollar has been anything but mighty” in recent years, says The Wall Street Journal’s Justin Lahart. The US dollar index, which tracks the currency against those of its major trading partners, has been treading water since 2012.
But now it looks as though the dollar is heading higher: the index is at its highest level for more than a year, and the outlook remains bullish.
The key to exchange rates is the outlook for growth and interest rates. On this score, the US dollar knocks spots off its main rivals. The US economy is gradually strengthening, while the eurozone and Japan have weakened.
So, interest-rate rises are looming in America, which would boost the yield on US assets, while monetary policy is more likely to be loosened in Europe and Japan.
The US current-account deficit has more than halved from its 2005 record of 6.2% of GDP, implying a firmer currency.