The drivers of USD strength remain (1) macroeconomic divergence, (2) the prospect of Fed hikes when others are easing, and (3) interest-rate differentials moving in favour of the US.In addition, the ‘currency wars’ – which we have been discussing since October 2014 – remain in full swing, with the euro area, Japan, Switzerland, Australia and New Zealand all having talked down their currencies. This is differentiated from quantitative easing or interest-rate cuts per se because those measures are aimed at boosting domestic growth, whereas encouraging currency weakness appears to be aimed at boosting exports.The US, for its part, has yet to come out strongly against USD strength. Meanwhile, with Asia ex Japan (AXJ) importing deflation from the euro area and Japan via EUR and Japanese yen (JPY) weakness, while external demand for AXJ exports remains mixed, regional central banks will likely continue to focus on supporting aggregate demand via accommodative monetary policy. “Once the Fed starts hiking, we expect some USD retracement, particularly against EM currencies from Q3”, Said Standard Chartered in a report on Wednesday

The material has been provided by InstaForex Company –