Fundamentals supporting secular USD strength

Recent US net international investment position data remain consistent with our view for a secular positive trend in USD. USD strengthening since the crisis, compared to when the EUR-USD was around 1.60 in summer 2008, have worsened the NIIP, especially over the last year  Still, the NIIP has helped to effectively smooth over years of previous indebtedness.

The diminished impact from previous deficits is one core feature of our expectations for longer-term USD upside. While the rolling crisis in Greece and increasing concerns about Chinese growth and equities jostle FX markets near term, we still hold onto our view of parity for EUR-USD for the end of the year and 2016.

In a cyclical sense, relative monetary policy between a Fed is hiking rates and an ECB still in a quantitative easing program. But in a longer-term ense, fundamental exchange rate models often revolve around measures of foreign indebtedness, such as current account balances. Such models also support USD strength as well.