JP Morgan - Key drivers of USD
1. Forecasts are unchanged since September, when we last revised targets to show additional USD weakness into 2013 due to greater US inflation risks from Fed QE and less European sovereign stress given the ECB’s OMT program. End-2012 targets are close to current spot levels to convey range-trading for most currencies: EUR/USD 1.30, GBP/USD 1.61, USD/JPY 78, AUD/USD 1.04, USD/BRL 2.02, USD/MXN 12.50, USD/CNY 6.32, USD/KRW 1125, USD/TRY 1.80 and USD/RUB 30.66.

2. ECB/Fed decisions last month have not yet triggered the steep dollar decline which normally results from abundant global liquidity and declining volatility. The dollar’s side-winding path reflects three constraints: none of the major regions are accelerating yet from their sub-trend expansions (US. China, India) or recessions (Euro area, UK); central bank intervention in parts of Asia and Latam limit local currency gains; and valuation concerns in several commodity currencies discourages investor demand.