Economic divergence exist, IMF reaffirms

Since the summer of 2014, US dollar has risen against all its major counterparts as well as most of its emerging market counterparts.

US dollar Index currently trading at 94.36 and has risen consecutively for a record 7 months.

FXCM US Dollar index has performed similar, trading above 11,700.

Technically speaking the dollar has broken above its long term downtrend which has been continuing since the 2001 tech bubble and rise of Euro.

The dollar story is more fundamental than technical.

• US have been experiencing better growth averaging above 2% since 2012.

• Unemployment rates have fallen below 6%, recent data pointing to better wage growth

• Relative hawkish central bank expects to raise rates this year from current near zero level

Our view is that dollar will continue to outperform against the other currencies only hindered by short term correction. Our only caution is the inflation rate in the US, which has so far failed to match the rise of the dollar and interest rate expectation.

Our view of economic divergence has further strengthened when we looked at the data from World Economic Outlook, published by IMF.

The chart shows where the growth is expected from in 2015. It shows that US to contribute 22% to the growth compared to 6% expected from the Europe.