In the story of the foreign exchange market, the chapter on 2018 was dominated by one leading protagonist: the ascendant US dollar. The buck stole the show as soaring growth, widening interest rate differentials and a flight to quality drove market sentiment in favour of the US currency against its major peers. The past 12 months were also marked by a series of emerging market sell-offs amid a persistently strong greenback; but can 2019 yield more gains for the US dollar or has the party ended? The question will be crucial for the FX markets in the coming months.
What led to dollar strength?
If dollar strength has been the single defining trend of the past 12 months, there are many factors that have contributed to this. Understanding these reasons will help us determine whether we can expect the dollar to rally further in 2019 or whether its bull run is ending.