Significance
Despite a less dovish than expected policy response on the part of the ECB on December 3, monetary policy divergence between the Fed and the ECB is likely to heighten in 2016. While the euro remains up 3.3% against the dollar since December 2, prolonged policy divergence between the United States and the euro-area should underpin the dollar's strength.
Impacts
Fears about China's economy and the end of the commodity super-cycle will also shape market conditions in 2016.
A recovery in productivity growth will allow monetary policy normalisation to proceed smoothly, boosting aggregate demand.
A stronger dollar will help the ECB achieve its inflation goal, through a weaker euro.
A stronger dollar will put further strain on EM assets, particularly in countries with large dollar-denominated corporate debt.
The Cost Channel of Monetary Policy: Further Evidence for the United States and the Euro Area