So far, this has been a volatile year for financial markets, and the currency markets have been no exception. The US dollar advanced nearly 9% in the first quarter before giving back almost two-thirds of its rally as of the middle of August. After declining nearly 5% at one point in the first quarter, the euro is now up 11% from its March lows. The Australian dollar fell 18% in the first quarter and has since rallied 25%. The Mexican peso fell 27% in the first three months and has since rallied 15%. Unlike developed market currencies, emerging market currencies, in general, have not yet recovered their losses. As far as what may drive the US dollar going forward, there are both shorter-term and longer-term factors to consider.

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