Broadly speaking, the larger a central bank’s balance sheet increase, the more likely the associated currency will weaken. The US dollar’s rise between 2012 and 2020 was mainly driven by many central banks following the Fed in its monetary support policy, either by implementing negative rates or by expanding their balance sheet. By doing so, the BoJ, ECB and other major central banks reduced their « advantages » in terms of carry and relative quantity of money vis-à-vis the greenback. However, implementing an aggressive policy mix in 2020 to support the world economy could prove to be a « game changer » for the dollar.
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