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Emerging market currencies show encouraging signs for investors

Our EM FX scorecard, which ranks 10 EM currencies according to key criteria (such as growth and vulnerability to external shocks) saw few changes over the past month. The Fed’s current hawkish attitude remains a headwind for EM currencies, as it increases funding costs. That said, the weakest EM currencies have seen some stabilisation, particularly […]

USD/JPY: a difficult balance

While widening interest rate differentials are supportive of the US dollar against the yen, if rates rise too far and too fast, they can help the yen against the dollar, as recent financial market volatility has shown. In October, the Japanese yen appreciated by 1.9% against the dollar and outperformed all other major currencies. Coupled […]

Renminbi nears a psychological threshold

Having dropped more than 5% year to date, our scenario of weaker growth in China in 2019 (we expect GDP growth to decline to 6.1% from 6.6% in 2018) is likely to further weigh on the renminbi through the interest rate differential. The Chinese current account is unlikely to provide much relief, as it has […]

Further consolidation of EUR/USD rate likely

We have long argued that growth and interest rate differentials are two key components for the direction of the US dollar. Both these drivers should continue to support the dollar over the short term. Indeed, economic growth in the US is likely to be strong thanks notably to an upswing in US capex but also […]

Sombre scorecard for EM currencies

There have been few changes in our emerging market (EM) currencies scorecard over the past month. Currently, it suggests that no EM currency at present is particularly attractive on a 12-month horizon. August was a particularly harsh month for EM currencies, with the Argentinian peso and the Turkish lira both dropping 25% against the US […]

A trying time for euro

The euro broke to the downside from its tight trading range relative to the US dollar since the end of May. These new lows go against our expectations of a gradual appreciation of the single currency relative to the greenback in the second half of the year and indicate that we have underestimated the short-term […]

Swiss franc’s defensive features likely to come back into fashion

The Swiss franc has been relatively weak since the end of June (depreciating 1.3% vs USD) despite increasing trade tensions. Yet the defensive feature of the Swiss currency, stemming from a structurally large current account surplus and elevated stock of foreign assets (i.e. its net international investment position), favour some appreciation of the franc. For […]

No EM currency looks attractive for now

Despite a relatively stable US dollar index and 10-year US Treasury yield since the end of May, emerging market (EM) currencies have remained under pressure, especially as a result of the recent escalation in trade tensions and a significant decline in the renminbi. The two latter factors have particularly weighed on Asian EM currencies. Since […]

Short-term hurdles to euro strength, but 2019 should be different

The ECB’s commitment on rates announced at its June monetary policy meeting showed it remains very prudent. Given recent unsupportive data, the euro likely faces high hurdles to significant appreciation in the short term. Macro data in the euro area may not be supportive in the very short term, with Q2 GDP likely to be […]

Scorecard still shows Brazilian real as most attractive EM currency

Despite recent moderation in the US dollar and in the 10-year US Treasury yield, emerging-market (EM) currencies remain under pressure, especially as a result of a recent escalation in trade tensions. Asian currencies have outperformed their emerging peers. The stability of the Chinese renminbi is likely serving as an anchor for Asian currencies, which also […]

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