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Policy divergence should sustain USD rally - RBS

FXStreet (Bali) - Greg Gibbs, FX Strategist at RBS, notes that we are now in a period of policy divergence that should sustain a USD rally for the foreseeable future.

Key Quotes

"In contrast to major economic policy convergence for much of the period from 2007 to 2013, we are now in a period of policy divergence that should sustain a USD rally for the foreseeable future. A question is whether this may be a 'bad dollar' rally associated with weaker EM and commodity currencies as occurred in May-August last year, or a 'good dollar' rally where risk appetite remains robust and investors switch towards funding positions with borrowing in EUR and JPY (rather than the USD)."

"Last week it flipped more to the bad-side. However, a key difference this year compared to last is that instead of policy tightening by the ECB and China, both have eased. As such, we see the broader outlook remaining in favour of more sustained global risk appetite, notwithstanding occasional periods of correction as the market continues to adjust to a higher rates outlook in the US. This week may be one of those 'bad dollar' periods if the Fed drops its "considerable period" language."

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