Today’s monetary landscape is one of divergent central
bank policy. While the U.S. Federal Reserve ended its
nearly 6-year quantitative easing (QE) program at
the end of 2014, and has now embarked on a cycle of
raising the federal funds rate, the rest of the world is
still conducting QE programs and holding to zero (or in
some cases negative) short-term interest rates. Currency
markets have taken note. Between December 2013 and
June 2015, the euro declined in value by 19% versus
the U.S. dollar, while the Japanese yen and Australian
dollar have each declined by 14%. Such declines are a
natural market response to the loose monetary policies
of global central banks relative to their U.S. counterpart.
Unsurprisingly, such large moves have had the impact of
placing currency risk at the forefront of investor concerns.
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