UBS - "This year the dollar is leading the other major currencies. But on a broad trade-weighted basis, including emerging market and commodity currencies, the greenback remains close to its all-time lows.
Dollar bulls - looking for a multi-year greenback rally like those of 1978-1985 and 1995-2002 - are anticipating the Federal Reserve will start scaling back its quantitative easing this year. That appears the most likely trigger for a broader dollar recovery in 2013.
But for a big turn in the greenback to be sustained, the behaviour of US fund managers, the largest holders of dollars in the world, will be key. During the major dollar bull runs in the 1980s and 1990s, US bond fund managers repatriated assets substantially. This pressured overseas markets while pushing the dollar to multi-year highs. The latest Fed Flow of Funds data suggests US investors are poised to do the same again from 2013."
Mansoor Mohi-uddin, Managing Director and Head, Foreign Exchange Strategy at UBS Macro Research.