Foreign central banks, notably the European Central Bank and the Bank of Japan, are implementing loose monetary policies and quantitative easing to combat deflationary pressures and a stagnate economy.
The loose policies have weighed on the countries’ respective currencies and yields. Consequently, foreign investors could turn to other countries, like the U.S., for more attractive yield-generating assets. The potentially greater demand for U.S. Treasuries will help support prices push down Treasury yields. Bolstering the greenback, foreign investors will also raise demand for U.S. dollars to purchase USD-denominated assets. [Keep Tabs on These Currency ETFs]
Additionally, U.S. dollar will continue to strengthen as the Federal Reserve is more likely to hike rates sooner than the Eurozone or Japan. However, PIMCO argues that rate hikes may be more tempered due to the relatively slow growth environment.
“No one’s talking about rate hikes in Europe for several years,” Richard Clarida, an official at Pimco, said in the article. “Japan is still in an easing cycle. Globally, while the Fed and the Bank of England may start to move in 2015, it’s not going to be your father’s or your uncle’s rate-hike cycle.”
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Max Chen contributed to this article.