The return of the dollar

Investors have taken note of the signs that suggest the greenback is set to strengthen.

"The world is used to a weak dollar but the signs are it is going to have to adapt to a strong dollar going forward," says Clem Chambers on Forbes.com. The gradual economic recovery in the US will lead to rising interest rates, encouraging capital that has flowed elsewhere in a search for yield to return home, thereby buoying the greenback.

The trigger for this shift will be the wind-down of quantitative easing (QE), says David Woo of Bank of America Merrill Lynch. Once QE ends and interest rates begin to normalise, expect the US dollar index which measures the weighted average value of the dollar against a basket of major currencies to rise sharply. A quick return to 100 the average level over the past 35 years is likely, he thinks. (A higher value for the index indicates a stronger dollar.)

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