The dollar as measured by the DXY index did almost nothing in 2013. So what does that mean for 2014? The changing economic environment will mean a very different dollar range and move. Call it the transition year, but currency markets will be about the transitioning of monetary policy five years after the Great Recession.
The Fed has started to taper which means that the Fed's balance sheet will not grow at the same pace as 2013. The result is a tighter funds market for marginal investing even if forward guidance is keeping rates low. The reason for the taper is that the US economy is doing better which is another reason for a stronger dollar.
Japan wants to see a lower yen and the EU would also prefer a weaker Euro. In the developed world, the bias is stacked toward a higher dollar. In emerging markets, the impact of a stronger dollar is being felt. Strong dollar periods are usually linked to poor EM markets. The usual reason for this poor performance has been the "original sin" problem of emerging markets having to fund in dollars. The capital flow environment is now not as friendly to EM countries. There is less money moving around the world as bank capital is needed improve balance sheets.
A stronger growth environment starting from the US will place more upward pressure on the dollar than what was seen in 2013.
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