We think the widespread fall in the dollar against other major currencies in the wake of the “devaluation” of the Chinese renminbi was primarily a response to a shift in expectations for US monetary policy. Nonetheless, the fall in the dollar has since been mostly reversed and our view is that the US currency will tend to strengthen over time. This is tied to our view that China’s economy is not in terrible shape, and that the Fed will raise the federal funds rate by more than envisaged over the next year or so.
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