A third great dollar bull run is on the way I believe despite it’s releatively small rally so far.

Since the end of the Bretton Woods system of fixed exchange rates in 1971, the US dollar has had two big bull runs and three bear markets.

The dollar index – which tracks the greenback against a basket of other major currencies – is up only 1.5 per cent this year, and only three out of 24 major emerging market currencies have managed to hold their ground against the greenback.

I believe that a combination of US economic growth, the shale gas revolution, interest rate increases and the continuing weakness of other major economies will push the US dollar towards its third great secular rally since the end of Bretton Woods.

The Fed has now started tapering its quantitative easing programme and economic growth looks set to accelerate. Meanwhile, Japan will print even more money to stimulate its economy, and the European Central Bank is likely to have to ease policy further to avoid deflation.

A stronger dollar will be a relief to many countries that have seen the competitiveness of their exports erode in recent years.

Personally I’ve started to make new investments in dollars rather than sterling. I’ve also purchased a warrant, forcasting dollar recovery and some depreciation for sterling. Currency markets are however difficult to predict and only time will time if I’m correct.

Nigel Green deVere Group

Blog written 21st January