Tag Archives: FX Trends

(from my colleague Dr. Win Thin) China press is reporting that policymakers are drafting rules for a so-called Tobin tax on yuan transactions Former President Lula was named to the cabinet post of Chief of Staff by his protégé, President Rousseff The Brazilian central bank said it “sees room” to partially unwind the FX swaps program Egypt devalued the pound by almost 13% and said it would adopt a “more flexible exchange rate” The National Executive Committee of the ruling African...

In our work, we have argued that the dollar is having its third significant rally since the end of Bretton Woods.   The first rally was associated with Reagan though it began under Carter and followed 100 bp hike by a new Federal Reserve Chairman (Volcker).   On a real broad trade-weighted basis, the dollar appreciated by more than 50% over the seven years and in 1985, the G7 met at the Plaza Hotel in NY and agreed to coordinate intervention to drive the dollar down.     Before last...

The US dollar is firmer against most major and emerging market currencies to pare this week's decline.  There are three notable exceptions, and they are all in Asia.  For all practical purposes, the dollar is flat against the Japanese yen near JPY11.30.   The South Korean won is up almost 1% to extend this week's pace-setting the gain to 2.65%.  The dollar has fallen 7.2% against the won since it peaked at the end of last month.  The Taiwanese dollar is 0.6% higher, which essentially...

If there was one word Yellen emphasized yesterday it was caution.  The dot plot reflected that as well.  Can one ask if the Fed is being too cautious?    Yellen acknowledged that the Fed's assessment of the US economy had not changed much from December.  There is little reason it should.  However, it is difficult to reconcile that with the substantial change in the forward guidance, and the halving of the rates hikes that are deemed appropriate this year.  The US labor market continues to...

The cry that the dollar has peaked is gaining ground.  We are not convinced.  The macro-fundamental case remains intact.  Divergence between the US and other high income countries continues, even if at a more gradual pace than the Federal Reserve expected a few months ago.  This Great Graphic of the Dollar Index, created on Bloomberg, shows that shows the broad consolidation over the past year continues to hold.  The break of 95.00 today seems to point to a test on the low from last...

The Federal Reserve's cautiousness has sent the dollar reeling.  The Fed's backtracking to two hikes this year from four is still met with skepticism by the market.  It previously had a June hike nearly discounted but has not pushed that out until September.   With a backdrop of  BOJ, and ECB and PBOC easing policy, and the Federal Reserve reducing the number of hikes it anticipates, the recovery from the turbulent start to the year continues.   Although the Nikkei slipped, the MSCI...

The Federal Reserve halved the number of rate hikes it anticipates this year from four to two.  The market has been moving toward this as well after having thought the would be no hikes this year.  The dollar sold off.  The dollar-bloc currencies and emerging market currencies are have rallied sharply. Risk assets in general like the idea of a less hawkish Federal Reserve.   The Fed's dot plots point to a Fed somewhat less confident on the near-term outlook but maintained the...

The EU leaders summit on refugees begins tomorrow.   A conclusive agreement will likely be elusive.   There are three main obstacles.  First, the effort to reinforce the external borders to allow free internal movement requires Turkey's cooperation, but it won't be represented.  Second, that is important because Cyprus is demanding more concessions by Turkey.  Third, others such as Spain,  are concerned that the strategy contravenes EU and international law by abridging the right to...

Since the Federal Reserve hiked rates in December, both the European Central Bank and the Bank of Japan have eased policy further.  The idea that because they cut rates means that the Fed cannot raise rates is a not a particularly helpful way to think about that is happening.   The market attributes practically no chance for a Fed hike today.  But the FOMC is expected not to back off very much from its view that contrary to what some have argued, the December rate hike was not a mistake,...

If UK Chancellor of the Exchequer Osborne wants to position himself to be the next Prime Minister, the budget to be unveiled tomorrow may not be particularly helpful.  There is little room to relax fiscal policy, given the self-imposed constraints.   The deficit for the current fiscal year was projected to be GBP73.5 bln, but through January, the deficit has been GBP66.5 bln.  This suggests the deficit will be closer to GBP80 bln.    The budget deficit was 4.4% of GDP last year, down from...