US strength should benefit the greenback medium term

By UBS

US fundamentals keep outpacing its major rivals as shown by the last performance of the main economic indicators in the last weeks. The greenback, measured by the US Dollar Index, has posted its biggest daily advance since January 13 on last Friday, as Greek woes were weighting on sentiment.

In the view of M.Mohi-uddin, Managing Director of Foreign Exchange Strategy at UBS, the Fed’s “exceptionally low” interest rate stance could tumble if the improvement in the US economic activity accelerates, prompting the markets to start pricing in the likelihood of a hike in the cash rates before late 2014.

The analyst comments that UBS expects this week’s data to remain solid and suggests investors to scrutinize the US fixed income market, as a raise in the 10-yr benchmark could derive in a reaction of USD-based crosses, particularly USD/JPY.

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