America’s closed economy can handle a surging dollar and a fresh cycle of
rising interest rates. Large parts of the world cannot. That in a nutshell
is the story of 2015.
Tightening by the US Federal Reserve will have turbo-charged effects on a
global financial system addicted to zero rates and dollar liquidity.
Yields on 2-year US Treasuries have surged from 0.31pc to 0.74pc since
October, and this is the driver of currency markets.
Since the New Year ritual of predictions is a time to throw darts, here we go:
the dollar will hit $1.08 against the euro before 2015 is out, and 100 on
the dollar index (DXY).
Sterling will buckle to $1.30 as a hung Parliament prompts global funds to ask
why they are lending so freely to a country with a current account deficit
reaching 6pc of GDP.