FXStreet reports that strategists at Capital Economics now expect that the U.S. dollar will strengthen somewhat over the next couple of years as the U.S. economy outperforms and its policy mix diverges from that in most other major economies. 

“We now expect that this rise in the 10-year US Treasury yield has further to run and that it will continue to outpace the rises of equivalent yields in other developed markets. The upshot is that we think that the US dollar’s appreciation will also continue.”

“We now expect USD to make further gains against most currencies, and especially those of economies where both short- and long-end interest rates are set to remain low, such as the euro and the yen.” 

“We think the US dollar will appreciate against the renminbi and other Asian currencies that generally track it. In addition, we expect most other emerging market currencies will struggle in an environment of rising US yields, weak domestic growth, and faltering commodity prices (with the exception of oil, the price of which we expect to rise this year). 

“The currencies which we expect to fare best are those of economies whose recoveries are strongest and central banks are most willing to raise interest rates. These include the NZ dollar and Norwegian krone, as well as the Czech koruna and Chilean peso.”