A changing regime
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In 2005, currency markets were mainly driven by relative interest rates. High- yielding currencies generally outperformed low-yielders, and the carry argument gained the upper hand over the current account and other considerations.
In a world of free capital mobility, relative interest rates rather than current account positions are a better predictor of FX change, but changes to the expected monetary policy cycle will – all else being equal – leave currencies backed by current account deficits
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