In April 2016 we published From Dollar Dominance to Divergence, a resource to help investors understand the behavior of currencies by presenting analysis of historical currency momentum, valuation, and fundamentals in five key base currencies: US dollar (USD), British pound (GBP), euro (EUR), Swiss franc (CHF), and Japanese yen (JPY). In the months following publication, currency volatility and dispersion surged given the injection of political surprises in the United Kingdom and the United States.

The dollar rally since 2011 paused for much of 2016, but quickly resumed following the US election. The backdrop of the past two years has been heightened volatility in currency markets as investors grapple with a strong USD amid diverging monetary policies across the developed world. Compared to the two previous cycles, history implies the USD has more to rise before the current strong dollar cycle is over. However, the currency is entering the final phase of the cycle—how much longer the cycle lasts and how high the dollar ultimately goes will be highly dependent on the fiscal and trade policies enacted by politicians and the responses from global central banks. And the ultimate peak may not occur until the US economy slips into recession.

This chart book updates our analysis from early 2016 as we continue to believe investors need to understand how their base currency behaves against other major currencies through periodic review of charts like the ones we present here. For more on developing a currency hedging policy, please see our 2016 report, Strategic Currency Hedging Policy: A New Framework.