These contrasting inflation outlooks suggest
further monetary policy divergence is ahead (read more on this divergence and its investing implications in our recent post Opportunities emerge as central banks diverge.).
As Poloz articulated in a speech in Ottawa at a BIS BREAKFAST SERIES January 7 (
regarding monetary policy divergence): «It is very important that we understand the reasons for these policy divergences.
Additionally, based on the theme
of monetary policy divergence on a global basis, we would anticipate that, all things equal, the US dollar will likely strengthen versus other developed markets» currencies, particularly over the longer term.
There were no apparent catalysts, but some market analyst said in hindsight that the euro's early slide may have been due to
monetary policy divergence between the ECB and the Fed.
(For more on
this monetary policy divergence, check out the BlackRock Investment Institute «Diverging World» interactive graphic).
This monetary policy divergence comes as U.S. inflation appears poised to re-awaken, whereas price pressures elsewhere are minimal.
As we go forward in 2016, we anticipate
this monetary policy divergence will likely impact the US dollar; we would expect the dollar to appreciate against the major currencies over time.
When it comes to the EUR / USD,
monetary policy divergence will be a key theme to watch in 2018.
«We expect
both monetary policy divergence and minimal support from commodity prices to push the currency lower over time.
Contrasting inflation outlooks in the U.S. and eurozone suggest further
monetary policy divergence, creating opportunities for investors.