The dominant trend in currency markets is the strength of the US Dollar, and this is founded on strong ground that the US rates are rising no matter what happens. The factors that are likely to facilitate this are the stronger than expected economic recovery and the high inflation. The Fed’s decision to start the tapering of bond purchases and the subsequent statement from the Fed Chairman on the likelihood of tapering of a higher order in view of the developing economic situation, are pushing the rates higher, and this is just the beginning of a trend that is going to stay here for a long time to come. What may influence the Fed decisions in future is the spread of the new variant of the virus, the trajectory of commodity prices, and the US employment numbers. While the new variant is widely believed to be weaker though infectious, may not cause any major disruption, at least that is what is emerging from the limited data analysis. Given the factors at play, the GBP or the Euro is going to trade lower from the current levels. The US asset markets are yet to reflect the preference for US Dollar completely as of now, but the matrix of preferences may reflect a self-accelerating trend. The strength of the US Dollar, the gradual deterioration in the trade terms, the continuing exit of the foreign investors from emerging markets, are factors that may be of consequence to the currency markets and asset markets alike, in the coming months, mainly for the new economies. There could be some counter trends too towards the year-end, and early next year as the markets becomes thin on account of the holidays
