US: 2-year premium over Germany and Japan at new cyclical highs – BBH

By FXStreet Research Team at BBH, argue that the dollar is in its third significant rally since the end of Bretton Woods in 1971.

Key Quotes

“The Reagan dollar rally was driven by the policy mix of tight monetary policy and loose fiscal policy. The G7 effort to stop the dollar’s appreciation at the Plaza Hotel in September 1985 marked the end of the Reagan dollar rally.

After a nearly ten-year bear market for the dollar, that included the collapse of the Soviet Union, the fall of the Berlin Wall and the ERM crisis, there was a second dollar rally. The Clinton dollar rally was driven by the tech bubble. It too ended with G7 intervention (October 2000).

Both the Reagan and Clinton dollar rallies were preceded by rate hikes. This is not to say that all Fed hikes spur dollar rallies, but the two significant dollar rallies before the present were proceeded by the tightening of US monetary policy. The Clinton dollar rally also saw a fundamental change in the US approach to the dollar.

US Treasury officials, like Baker on the Republican side and Bentsen on the Democrat side, has threatened to devalue …read more

Source:: FX Street