Analysts at Nomura explained that combining past Fed hiking phases and post-2008 central hiking phases, they find that the range of currency performance has been -5% to +9%.
"The current 22% rally in the dollar, therefore looks significantly higher than any previous reference points, and suggests that some of these gains may be unwound in order for the performance to converge to history.
The other point worth bearing in mind is that the two hikes by the Fed so far may sound modest, but we need to recall that the Fed has tapered as well. Computing what Fed QE would translate to in terms of an implied policy rate is more art than science, but our estimates suggest at its height it was equivalent to -5% (see “Lift-off, term premia and exchange rates”). If this is correct, we therefore have already seen 550bp of tightening, which could explain the dollar rally has been so large."
"At the same time, this also implies that other central banks pursuing non-conventional monetary policy, such as the ECB and BOJ, have very negative implied policy rates. But if they were to exit their policies then they should see an equivalent tightening and hence currency appreciation. This will likely be the bigger story for 2017 – US economic strength will help boost global growth and tilt the risks for the ECB and BOJ to exit their ultra-easy policies."
"Already the BOJ has seemingly ratcheted up its 0% 10yr target to 0.1% and inflation is picking up sharply in the euro area, which should increase the likelihood of the ECB tapering after the French elections. We therefore favour maintaining a bearish dollar stance and would look to sell any rallies in the currency."