Global Markets 2006 Forex Outlook

Abstract

It is clear that if we are to gain an appreciation of the likely risks for the currency markets in 2006 then we need some understanding of what happened last year as well. In this paper we therefore ask why monetary policy has come to dominate activity in the foreign exchange markets in 2005 (looking at Japan and the US as examples of the dynamics currently at play in the FX markets) and why we believe that the USD is better placed to benefit than other currencies from likely shifts in monetary policy in 2006.