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Has Dollar Strength Only Just Begun?

The U.S. dollar ranks as the single best-performing major currency against its 16 peers for the past week, month and year to date, according to Bloomberg data.

Overnight, its steady advance breached two key thresholds. The dollar traded above 110 yen for the first time since 2008, and broke 125 euros for the first time since 2012.

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The dollar has risen as the U.S. economy has recovered faster than other regions of the world. U.S. gross domestic product expanded 4.6 percent in the second quarter, compared with no growth in Europe and a 4.6 percent decline in Japan. The difference highlights why the Fed will likely raise rates sooner than the European Central Bank and the Bank of Japan, further enhancing the dollar's appeal.

Citigroup Global Markets Inc. G10 currency strategist Richard Cochinos has written extensively about dollar strength since June. He's still bullish. So are his counterparts Marc Chandler of Brown Brothers Harriman & Co., and Chris Verrone of Strategas Research Partners.

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All three strategists are long-term bullish on the dollar, arguing fundamental economic strength in the U.S. will draw global capital flows. Equally, they all acknowledge the powerful 9 percent advance of the U.S. Dollar Index since early May.

We encourage readers first look at the one-year chart below, and then focus on the more meaningful 15-year chart. If recent economic data is any indication, dollar strength has only just begun.

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