Dollar surges in 2014 on rate rise hopes

The dollar rose against all other major currencies in 2014 for the first time since the turn of the century, as investors expecting interest rates to rise piled into the greenback.

The US currency made gains against the euro, yen, pound, South Korean won, Brazilian real and 11 other global currencies this year, marking the first time since the height of the dotcom boom in 2000 that all major currencies as ranked by Bloomberg have fallen against the dollar.

Expectations that the Federal Reserve will raise interest rates in 2015 from historic lows have been a major factor in the dollar's strength, as central banks in other countries including the European Central Bank and the Bank of Japan continue to take an easing stance. The euro and the yen have both fallen 12 per cent against the dollar this year.

Investors have been reversing the trend of the past few years to put money outside the US in search of higher yields and stronger returns in emerging markets as interest rate expectations have shifted and the US economy has powered ahead - a trend that analysts are predicting will continue in 2015.

"Money that was pushed out into riskier assets and currencies is coming home," said Kit Juckes, a foreign currency strategist at Societe Generale. "The more capital-starved economies weaken in emerging markets, and the more the US economy outperforms, the higher the dollar could rise - until the Federal Reserve too is dragged into the 'currency wars' and tries to slow or stop the move."

"The dollar is still a very clear trade," said Stephen Jen, head of currency hedge fund SLJ Macro Partners.

The dollar index, which weights the US currency against a basket of major trading counterparts, hit its highest level in nine years on Tuesday and has risen 13 per cent this year.

The slump in global oil prices has also played a role in dollar strength, as oil-exporting nations have seen the value of their currencies tumble. Norway's krone was the worst performing major currency against the dollar this year, falling 19 per cent.

Oil-importing nations, by contrast, have seen their currencies hold up better. South Korea's won was the least worst hit by dollar strength in 2014, falling just 4 per cent. Singapore's dollar was down 5 per cent while Taiwan's dollar fell 6 per cent.

The dollar's gains against other global currencies have been even stronger this year. Russia's rouble has fallen 46 per cent as lower oil prices and sanctions imposed on the country amid the Ukraine crisis have taken their toll. Argentina's peso has fallen 23 per cent, while Colombia's peso lost 19 per cent.

Analysts are predicting another strong year for the dollar, though at a slower rate than this year, with an average of 27 analysts on Bloomberg predicting a 4 per cent gain for the dollar index in 2015.  

© The Financial Times Limited 2014. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation