Dollar short

On a broad, trade-weighted basis, the dollar has declined by 2.3% so far this year.

With the US economy on its gradual recovery path, the dollar is unlikely to weaken too much against the EUR or GBP in the near term

However more is likely: If Asian and Middle Eastern central banks allow their currencies to appreciate against the dollar at a faster pace, or de-peg them from the dollar, they will accumulate dollar-denominated reserves more slowly.

The gradual diversification of such reserves away from the dollar and from liquid fixed-income securities through the growth of Sovereign Wealth Funds seems likely to further weaken the dollar (as well as boosting US real rates).