3 Reasons Why 2014 Might Be the “Year of the Dollar”

Is the dollar ready to regain its crown as the “King of the Hill” among major currencies? Let’s take a look at three reasons why some analysts think that 2014 might be the “Year of the Dollar”:

1. Taper, taper, taper…

Sure, there may be several factors that could still force the Fed to delay their reduction of bond purchases but the fact remains that the U.S. economy is the first among the major economies to actually consider tapering stimulus.

Consistent gains in hiring towards the latter half of this year have convinced several market watchers that the FOMC is indeed ready to reduce stimulus. However, with inflation dove Janet Yellen set to take the Fed leadership next year, the taper isn’t a done deal just yet. If the U.S. economy keeps churning out impressive figures though, strong fundamentals could keep the Greenback very well supported.

2. Finally, a budget deal!

While the budget impasse and U.S. government shutdown in October dulled the dollar’s shine for quite a long while this year, fears of another shutdown and a potential default have been chucked out the window when the House approved the federal budget deal this week.

This means that U.S. dollar bulls have one less thing to worry about by February 2014, which was supposedly when the debt ceiling deadline would be reached. Now that lawmakers have finally decided to put their differences aside and come up with a compromise for the federal budget, government spending will be limited to $1 trillion and the deficit could be trimmed by $85 billion over the next 10 years.

3. Market analysts say so.

BNP Paribas made headlines yesterday when its currency strategists claimed that 2014 will be the “Year of the Dollar,” citing underlying strength in the U.S. economy as a reason for further gains.

Paul Lambert, who is the head of currencies at London’s Insight Investment, mentioned that relative monetary policy will continue to play a role in forex price action in the coming year. He believes that the Fed officials will continue to emphasize the costs of maintaining QE and might keep hinting at an exit from time to time.

Although currency analysts at French bank Societe Generale pointed out that a dovish Fed rhetoric could keep the dollar’s gains at bay, the U.S. currency will still win “by elimination” as other central banks are open to further easing.

Do you agree that 2014 will be the “Year of the Dollar”? Let us know by voting through the poll below!

8 comments

  1. Mahapathy

    Though it seems that US is growing, still I see more deficit in average life of US peoples, so the US Govt. need to reanalysis the tapering, I feel Dollar is bluffing

    Reply
    • Forex Gump Post author

      That’s another way to look at it! Seems that the headline figures are looking good but the living conditions haven’t really improved much. Let’s see if the new Fed head will emphasize this. Thanks for sharing your thoughts!

      Reply
  2. Stevecsd

    Regarding:

    “government spending will be limited to $1 trillion”

    This only applies to DISCRETIONARY SPENDING. The full budget for 2014 is $3.45 TRILLION in total (which includes Social Security, Medicare, Medicaid and defense spending.)

    Trimming $85 billion from budget deficits over 10 years amounts to less than 2% of the estimated budget deficits. The current budget deficit estimate for FY 2014 is $744 billion.

    Reply
    • Forex Gump Post author

      That’s true. Of course they chose to highlight the $1 trillion figure because it looks good on paper, but the underlying figures tell quite a different story. Let’s see how it unfolds in the coming year. Thanks for pointing this out!

      Reply
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