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The dollar has been on a roll in recent months, breaking new ground against many currencies, as markets prepare for the eventual rate hike in the US, awaiting us sometime in 2015.

But has the move gone too far? Here are 3 comments from 3 different continents that are quite different than what we’ve heard for a very long period of time.

  1. From the US:  The Federal Reserve rarely says anything related to the value of the dollar. The  Treasury used to say in the past that they have a “strong dollar policy”  and it didn’t really convince anybody. But recently, the president of the New York Fed, Bill Dudley, referred to the exchange rate: :”If the dollar were to strengthen a lot, it would have consequences for growth”. He even continued and connected the dollar strength to monetary policy: “And if the dollar were to appreciate a lot, it would tend to dampen inflation. So it would make it harder to achieve our two objectives. So obviously we would take that into account”.
  2. From  Japan: Just as  USD/JPY crossed the very round number of 110, a Japanese official stepped up and talked about  excessive movements in foreign exchange levels. Japan’s economy minister Amari said “Excessive currency movements undesirable”. The last we heard from them was when USD/JPY was at much lower levels. They needed a weaker yen to boost exports, but an extremely weak yen already hurts Japan via a rising price of energy imports, and that could already derail the recovery.
  3. From France:  The president of Republic,  François Hollande, has been complaining for months and months about the strength of the euro and how it hurts the economy. Well, now we hear a different tune from Paris: Hollande says that the “euro is now at a more realistic level”. Is he comfortable with EUR/USD at 1.26? We will surely hear from him when the currency moves to different levels.

We have finally seen a correction, that was the result of  an accumulation of weak US data. However, the move didn’t go too far. While the greenback may look overbought at the moment, it doesn’t mean that the move is over. Perhaps the rally was just too fast, but the USD didn’t go too far. In other words: after a necessary correction, the greenback could still extend its gains.

What do you think?

More: US dollar index technical analysis