HSBC has turned bullish on the U.S. dollar, as a result of a global currency war which it said is "intensifying".
The bank said the likely "winner" of central banks' attempts to use monetary policy to manipulate the value of currencies would be the dollar, and had adjusted its forecasts accordingly.
"We believe the currency war will be a key element of the relative performance of currencies going forward. It is a development that points to a stronger dollar than we previously had penciled into our forecasts," said HSBC's Global Head of Foreign Exchange Strategy, David Bloom, in a note.
Central banks have been overseeing measures which help devalue currencies – such as expansive asset purchasing programs and low interest rates – for some time. But talk of a currency war has intensified over the last six months as a result of Japan's dramatic policy moves, which have weakened the yen by more than 25 percent against the dollar since November.
Other central banks have since followed suit – a result, HSBC said, of the Bank of Japan's success.
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"Such success has created a snowball effect and spurred other central banks to join the currency war. The Bank of Israel, Reserve Bank of Australia and the Reserve Bank of New Zealand have all recently showed their presence in the foreign exchange markets, attempting to weaken their currency and all have had success within a relatively short space of time," Bloom wrote.
A result of this is "dollar strength, strength, strength" Bloom said, because the greenback is the currency most able to offset depreciation elsewhere.
"The problem with any currency war is that gains are only possible if someone else is content to allow their currency to act as the offset to currency weakness elsewhere, and allow their currency to appreciate," Bloom said.
"In February, we thought the euro might be able to fulfill this role, but recent evidence suggests the likely 'winner' in this war is the dollar."
St Louis Federal Reserve Chairman James Bullard would not comment on the strength of the dollar, but told CNBC on Friday: "Countries outside the U.S. have to run their own exchange rate policy as they wish."
"The notion is that if you allow a flexible exchange rate, then you can have your own independent monetary policy in your country, regardless of what we are doing in the U.S. And that's still the right vision for how this should work," he said. "But a lot of countries try to manage to the dollar, and then they are importing U.S. monetary policy."
(Read More: Japan Bulls Unwavered by Stock Market Rout)
Meanwhile, Andrew Sentance, a former member of the Bank of England's Monetary Policy Committee, told CNBC it was harder than expected for central banks to control their country's currencies.
"Central banks actually find it very difficult to move currencies in the way that they would like. When I was on the Bank of England's Monetary Policy Committee I thought the pound was too weak – I think it is probably still too weak – but getting sterling to move up and help control U.K. inflation is quite difficult," he said on Friday.
However, Bloom said policy makers had recently had "profound" success in manipulating currencies.
"Historically it has not always been such an easy ride, and attempts to withstand market pressure have not been straightforward," he said.
"This time around, part of the reason why central banks have had greater success is because the political pressure to provide economic prosperity has been so pronounced."
As such, Bloom said the dollar's rally would continue. HSBC has revised its 2013 currency forecasts for the dollar from 1.35 euros to 1.24 euros, and from 1.48 pounds to 1.45 pounds.
"If anything, the risks are for even greater dollar strength than we have pencilled into our new forecast profiles," Bloom added.
"Our dollar bullishness does not rely on an early tapering or an end to U.S. QE3 (the third round of asset purchases), but if the Fed acts sooner than we expect, then the dollar will capitalize. The dollar has already risen, but this is just the beginning."
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- By CNBC's Katrina Bishop, follow her on Twitter @KatrinaBishop