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Forex pairs in this Article » EUR/USD, GBP/USD (Bali) - According to HSBC FX Strategists, the US Dollar will be the best performing currency in 2014, as the Fed follows the course to fully unwind QE purchases.

Key Quotes

"We see the USD rally continuing and expanding in scope in 2014. The pace of tapering and the ability of the Fed to reassure the market that rate hikes need not swiftly follow the end of tapering will be central to the USD’s fortunes. On both measures, we expect the currency to thrive. Further, the two notable exceptions to USD dominance in 2013, the EUR and GBP, are likely to succumb in 2014."

"The pace of further USD gains will depend on how fast the Fed chooses to taper and whether the market continues to believe there will be a big gap between the end of QE3 and the first rate hike. On both aspects, we think the balance of risks favour USD strength."

"The USD may also benefit should the market begin to question the Fed’s message that there is likely to be a substantial gap between the end of QE3 and the start of a rate hike cycle. Surveys suggest that market expectations of this gap currently stand at 10 months. It may narrow. The UK provides a useful parallel where the market has questioned central bank forward guidance, and bought the currency as a result. A similar process in the US is likely to drive the USD stronger."
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