I've been bullish on the dollar for some time now.
My view was based on the idea that, with the Federal Reserve getting ready to taper off its quantitative easing, while other central banks are still determined to keep their extraordinary policies in place, the dollar was going to benefit from the divergence in monetary policy.
Unfortunately, it hasn't worked out quite like I had expected. On the contrary, the dollar has been weakening against its G10 counterparts as investors revised down their forecasts for future U.S. rates.
This was happening even before Laurence Summers surprised the market by withdrawing from the race for the Fed Chairmanship, leaving the dovish Janet Yellen in first place. That's just made investors think that U.S. rates will remain low for even longer than they would have under a Summers Fed.
At the same time, tightening expectations for several other countries have been revised up, and I'd have to say that's where I've been most surprised.
The divergence of monetary policy that I had expected is turning into convergence, which is eroding the dollar's relative advantage and causing it to weaken. Perhaps the best investment strategy in such times is to avoid the dollar entirely and look for trades in the cross rates where policy divergence still seems likely.
(Read more: Questions over Fed chief a bigger issue than taper)
To begin with, the introduction of "forward guidance" in the UK has failed to change expectations so far.
While the Bank of England tried to convince investors that interest rates would stay low for longer than the market was discounting, they wound up persuading them of just the opposite.
The graph below shows that the forecast for three-month rates in two years is now higher than the peak before forward guidance was introduced. That's largely due to a lot of better-than-expected economic news from the UK, as shown by the sharp rise in the Citi economic surprise index.