Just noting that over the last few days, the greenback has reached almost 2 and a half year highs vs. an evenly weighted basket of the rest of the G7 currencies (EUR,JPY,GBP,CHF,AUD,CAD).
For timing perspective, the last time the US dollar traded this strongly was a couple of weeks after Ben Bernanke rolled out his famous Jackson Hole speech that presaged QE2 (that was late August 2010) This is truly remarkable, considering that we have seen
Reasons the US dollar is trading this strongly:
The US Fed front-loaded its balance sheet expansion moves in QE3 and QE3+ in Sep/Dec of last year and this was heavily anticipated - this year, the Fed may be on hold as US economic numbers look stable and as the Fed won't want to draw attention to itself ahead of the nomination of a new chairman or renomination of Ben Bernanke by President Obama - probably some time this summer.
The advent of Abenomics has seen Japan spring to the front in the devaluation game
The UK has all of the US problems, with none of the benefits (twin deficits, but weaker growth and higher inflation), and the BoE has repeatedly expressed a willingness to look through inflation and continue with aggressive monetary policy - with Carney possibly on the way this summer with the most aggressive measures yet.
The Euro is weakening again on uncertainty over what the next political steps will be becuase, while the debt and banking stability situation appears to be under control, there is no guidance on a way forward that is sustainable for the periphery, which aggravates the risk of a new crisis, particularly post the Italian election.
Growth concerns globally and disappointing returns for commodities, as well as compressed interest rate differentials have seen waning enthusiasm for playing carry trades involving the commodity currencies, which have generally weakened in recent months
Chart: USD vs. evenly weighted basket of the rest of the G-7 currencies (indexed to 100 about 2500 trading days before present, or mid-2003.)