Broadbased Dollar rally to continue - BBH

According to analysts from Brown Brother Harriman, the outlook of the Federal Reserve monetary policy will support the US dollar in the currency market during 2017, with a risk of an overshoot. 

Key Quotes: 

“We believe that the hawkish Fed outlook (coupled with dovishness elsewhere in DM) will continue to fuel the broad dollar rally in 2017.  Our past work shows three major dollar rallies since the end of Bretton Woods.  The Volcker Rally saw the US broad trade-weighted index (Real Effective Exchange Rate, or REER) rise 46%, while the Clinton Rally saw it rise 34%.  The current Obama Rally has so far seen a 26% rise in the REER, and so we see scope for another 10% or so move that would simply match the Clinton rally.”

“There is a risk of a greater overshoot than that, which could put the Obama Rally closer in magnitude to the Volcker Rally.  As a result, we believe most EM currencies will weaken between 5-10% over the course of this year, with more weakness possible in 2018.”