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C. Hecht, Currency Strategist at Commerzbank, evaluated the greenback's performance and gave a forecast for the US Dollar against the basket of currencies for a short and long term.
If we look at the most recent performance of the ICE US Dollar Index (a measure of the Dollar's performance against six major global currencies), we can see that since the second half of last year there have been quite pronounced US Dollar strength. In our view, this is mainly due to the fact that the risk of more quantitative easing by the Federal Reserve Bank has gradually been priced out. Therefore, there are more and more positive economic data publications form the US, which are pointing to a steady recovery. Due to this fact, we see more hawkish Fed. Thus, the likelihood of QE3 is gradually decreasing, which is certainly a positive factor for the US Dollar. Consequently, we still see strengthening of the USD to continue in months to come.
For EUR/USD we have a target of 1.25 on a short-term horizon, and for the end of September '12 we expect EUR/USD to reach 1.30.
We predict USD/JPY to be around 85 until the end of June, while the year-end target is 80.
We anticipate GBP/USD to be 1.61 in June '12; nevertheless, the pair might fall to 1.54 at the end of Q4.
Our main focus lies on the quantitative easing measures by the Fed. If we see that QE3 does not happen, then this will have a significant positive effect on the USD. Otherwise, if the economic data publications point the downside, which we currently do not expect, we predict the Dollar to weaken again.