Analysts disagree with traders such as Bank Sarasin's Suetterlin on the outlook for interest rates next year. When the Fed increased its benchmark rate to 4.25 percent on Dec. 13, it said that interest rates no longer stimulate economic growth.
US 10-year Treasuries yield 1.03 percentage points more than similar-maturity German debt. The gap has averaged 0.44 percentage points over the past decade. It has widened to 1.23 percentage points on Oct. 25, the most since 2000.
Yields on US notes rose above British government debt for the first time since July 2003 and now pay a quarter percentage point more. The US notes yield 2.86 percentage points more than Japan's government bonds.
The New York Board of Trade's Dollar Index, which measures the US currency against the euro, yen, pound, Swiss franc, Swedish krona and Canadian dollar, gained 12.7 percent, the most since 1997.
The record US$198.7 billion current account deficit in the first quarter did nothing to slow the dollar's march. By the third quarter, the dollar extended its gains as the shortfall narrowed to US$195.8 billion.
The current account is the broadest measure of trade because it includes services, tourism and income from investments.
"The story of the current account deficit allowed traders and analysts to justify any currency prices," said Steve Pearson, chief currency strategist in London at HBOS Plc, the UK's fourth-largest lender.
"Sentiment got overly bearish on the dollar," he said.
Pearson was the most accurate forecaster of exchange rates in the year to Sept. 30, according to Bloomberg calculations. He expects a rally to US$1.08 per euro and ?125 next year.
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