We have reduced the amount by which we forecast the dollar to strengthen against the euro and the yen this year, but increased the amount by which we project that it will appreciate against sterling. The big picture is that our new forecasts continue to be underpinned by a belief that the relative prospects for monetary policy in the US and elsewhere will drive the dollar higher. In addition, we suspect that an unwinding of “safe-haven” flows will undermine the yen (and to a lesser extent the euro), and that sterling will remain on the defensive until the UK’s future membership of the EU is determined.
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