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Global Currency Outlook of the Week
USD [USD]
USD likely to retrace recent gains
• The greenback traded in a volatile pattern over the past
month, but with a generally upward bias, as financial market
expectations on US short-term interest rates took a sharp turn
higher on inflation concerns.
• Citi analysts now expect the Federal Reserve (Fed) to raise
policy rates by 50 bps in 1Q09, with 2 further 25 bps hikes in
2Q09 and 3Q09.
• However, Citi analysts expect the dollar to retrace some of its
recent gains, given softness in the economy.
Euro [Eur]
Softer euro in 2009
• In the view of Citi analysts, the European Central Bank (ECB)
is likely to hike interest rates by 25 bps in July to anchor
longer-term inflation expectations.
• This is likely to keep the euro well supported in the near term,
although the ECB move appears to be factored into market
expectations.
• However, Citi analysts continue to expect a softer euro against
the dollar in 2009, as the cyclical economic momentum swings
away from the euro area.
Japanese Yen [JPY]
Upside potential appears limited
• According to Citi analysts, the yen is likely to appreciate during
the rest of 2008, given that changing policy rate expectations
in the US and euro area appear too aggressive.
• However, with the Bank of Japan (BOJ) monitoring downside
risks to growth stemming from surging oil prices, a rate hike
appears unlikely.
• As a result, this status quo in Japan’s policy is likely to limit the
upside potential for the yen. In 2009, a shift of Japanese
households’ portfolio into foreign currency denominated assets
may probably generate a modest depreciation of the yen.
British Pound [GBP]
Sterling likely to continue underperforming
• Fundamentals for the GBP continue to look challenging on the
back of slowing growth, rising unemployment, housing-related
weakness and surging inflation.
• As such, Citi analysts no longer expect the Bank of England to
cut rates this year. In fact, there is a risk that the rates may be
raised in response to elevated inflation expectations.
• Under these conditions, the pound is likely to continue to
underperform.
Australia Dollar [AUD]
Higher commodity prices to lend support
• Despite a slowing economy and the Reserve Bank of Australia
(RBA) signalling that monetary policy is likely to be on hold,
the risk to this view remains to the upside, with inflation
expected to remain above target until late 2009.
• Nonetheless, Citi analysts believe that further sharp gains in
Australian-specific commodity prices, especially those of iron
ore and coal are likely to benefit the AUD.
• However, given the renewed spike in oil and subsequent US
stock market volatility, Citi analysts caution that a possible rise
in risk aversion may be negative for the AUD.
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PLEASE VISIT THE CONTRIBUTOR'S WEBSITE
Million Leads
Internet marketing, Lead Generation
millionleads.googlepages.com
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May, 2012
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