Will the U.S. Dollar be up for 2016?

Given expectations that the euro will depreciate against the dollar as the Federal Reserve lifts interest rates for the first time in nearly 10 years and the European Central Bank extends its economic stimulus, Credit Suisse recommends buying the U.S. dollar (UUP). Buying the dollar is a short bet against the euro (FXE) and the Swiss franc (FXF), profiting if those currencies depreciate against the dollar. Currencies with higher interest rates are more attractive to investors because they can receive higher interest income when borrowing in a lower yielding currency to buy a higher yielding one.

 “We expect the impact of monetary policy divergence between the Fed and European Central Bank to increase as 2016 starts,” Credit Suisse wrote in a “2016 Global Outlook.” “The Swiss National Bank is likely to remain committed to preventing Swiss franc strength versus the euro even as euro to U.S dollar declines.”

Against this backdrop, ongoing economic strife in emerging markets and falling commodity prices go hand in hand with U.S. dollar strength and rising interest rates.

“We have long believed that the U.S. dollar is still engaged in a broader uptrend that will eventually take it to levels widely considered to be overvalued,” Credit Suisse wrote.

By: Ky Trang Ho, Forbes