The forex markets have been nothing if not exciting this week, what with the Italian elections, commentary from Federal Reserve Chairman Ben Bernanke, and the naming of a new Bank of Japan chief.
"Almost all currencies appeared to have peaked against the dollar, and the more recent rise in USD/JPY suggest the broad dollar is embarking on a multi-year uptrend," wrote Bilal Hafeez, a currency strategist at Deutsche Bank, in a note to clients that promised to explain "how China rebalancing, the Great Rotation to the U.S and Abenomics will change the world."
Hafeez has looked back at the dollar's performance over several decades, and he said it tends to follow six- to ten-year cycles whose endings are defined by swings in current account imbalances, capital flows, valuation, and interest rates.
The latest round of dollar weakness began in 2002, he said, and probably ended in 2011. In the past few years, he said, "all currencies appear to have peaked against the dollar" in the sense that they are no longer trading at their peak — and 70 percent have not traded within 5 percent of their post-2002 high in the past three months.
Factors that were driving the yen higher against the dollar are disappearing, Hafeez said, pointing to things like China's investment boom, the euro crisis, and the implementation of extreme easing in the U.S.
(Read More: CNBC Explains: Quantitative Easing)
As for Europe, he points out that U.S. growth has been relatively stronger for over a year, and that has dramatically affected capital flows. And generally, he said, "other central banks are catching up to Fed easing," and "having a distinctly bigger and more negative impact on their currencies over the dollar."
Hafeez predicts that the euro will fall to 1.10 against the dollar by the end of 2015, and the yen will fall to 115.
Camilla Sutton, chief currency strategist at Scotia Capital, also sees dollar strength ahead.
"Looking out at the policies at the G4 central banks, combined with Italy's vote for uncertainty over reform, positions the USD to be the one that bears the brunt of currency appreciation," she said, adding that she expects the dollar to rise this year against all the other big three — the euro, yen, and British pound.
Marc Chandler, chief currency strategist at Brown Brothers Harriman, is bullish on the dollar as well. Among other reasons, he notes that since September, when the latest round of quantitative easing was announced, "the net change in the dollar is not quite what one would expected if one assumes that the foreign exchange market has been driven" by that policy. "If we were playing cards, and you let me chose the U.S. hand, Europe's or Japan's, I would take the U.S. cards easily," he said.
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