The currency markets have a huge weight hanging over them these days. It has been eight long years since the global economic crisis threatened to decimate markets. Central bankers, as financial firefighters, arrived on the scene with tool boxes filled with accommodative fixes and in Europe, Asia, and the U.S., they remain on a dovish monetary path.
European and Japanese interest rates are in negative territory. U.S. rates are currently at 25-50 basis points on the short-term Fed Funds rate, and the Fed is threatening to hike the rate by 25 basis points by the end of 2016. The market consensus now shows an 80% likelihood of a hike. At less than 1%, the yield on the dollar remains close to a historic low.
The U.S. economy is growing at a moderate pace, and the central bank has officially moved from accommodation to tightening. However, the short-term rate is lower than it should be at this time given economic conditions. The Fed continues to look over its shoulder at the rest of the world and fear of the next economic shoe to drop has prevented the central bank from acting to fulfill its promise to increase