Quotes from Societe Generale Cross Asset Research:
-It is not the acceleration in US growth since the spring that is supporting the dollar, but growing confidence in the market that the Fed will start raising rates in 2015. 2-year Treasury yields may be low at 70bp, but that have doubled over the course of this year. If the Fed hikes rates (even once) in 2015, 2-year yields will be a lot higher than this in a year's time and the dollar will be stronger.
-Believing this will happen is scarily consensual, so the stakes are pretty high -especially if the slide in Spanish inflation is mirrored in the US, for example. But by the same token, if the Fed does finally start raising rates, the extent of the dollar rally (and the EUR/USD fall) could be pretty big…
The material has been provided by InstaForex Company – www.instaforex.com