The US/Eurozone Interest Rate Differential is an indicator of future USD price activity
From MacroMicro comes an interesting view of the US/Eurozone interest rate differential and its implication for the US dollar index. From MacroMicro:
When the U.S.-Eurozone interest rate differential widens, the return on dollar assets is relatively higher, attracting capital inflows into the U.S. and pushing up demand for the dollar, which strengthens the DXY index.
Based on the implications of interest rate futures, the spread is forecast to widen into mid-year, which would be supportive of the US dollar.
As USD pulls back to test its base breakout, it would appear that US/Europe spreads are indicating it will hold the breakout, but not get impulsive to the upside.
What comes later? That would depend on respective central bank policies at the time as well as the state of broad markets and economies (a widespread asset market liquidation would greatly favor the reserve currency, USD). As it stands now, the ECB is more dovish than the US Fed, which has widened the curve and supported Uncle Buck who, as you can see, has a lot of support.
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