Reuters blog archive
The collective talk about its inevitable drop is beginning to sound much like the drum-beat of opinion lasting more than half a decade that said the yen would fall while it stubbornly marched in the other direction.
Only the most spectacular fusillade of Japanese central bank cash in history managed to turn the situation around, and even now the yen is barely trading much weaker than the most conventional of predictions a few years ago.
The latest Reuters FX polls show swathes of the world's top forecasters standing shoulder to shoulder predicting the euro will fall. The questions left unanswered are why and how.
from The Great Debate UK:
--Torben Kaaber is CEO of Saxo Capital Markets UK. The opinions expressed are his own.--
Sterling may not be a currency that investors immediately associate with safe haven status. Typically, safe havens in the currency world have been the triad of the U.S. dollar, the Swiss franc and the Japanese yen.
As China marks the third anniversary of the first ever bond sale by a foreign company denominated in renminbi, questions are rife on what lies next for the offshore yuan market.
Since hamburger chain McDonalds sold $29 million of bonds on a summer evening just over three years ago, China’s yuan internationalization project has notched up impressive milestones.More than 12 percent of China’s trade is now denominated in yuan from less than 1 percent three years ago, Hong Kong – the vanguard of the offshore yuan movement – has more than one trillion yuan of assets in bank deposits and bonds and central banks from Nigeria to Australia have added a slice of yuan to their foreign exchange reserves.
Traumatized by several currency crises in the past, Brazil has made a dedicated effort in recent years to amass $374 billion in foreign reserves as China bought mountains of its iron ore and soybeans. When the next crisis came, policymakers figured, the reserves would act as Brazil's first line of defense.
It turns out that those reserves, which jumped from just $50 billion in 2006, may still not be large enough, Bank of America-Merrill Lynch analysts found in a report on the increased volatility in foreign exchange markets as the U.S. Federal Reserve prepares to scale back part of its monetary stimulus.
India’s concerted effort to shore up the battered rupee over the past two weeks has had one goal in mind: raising currency-adjusted yields to a level where even investors wary of a withdrawal of cheap money from the U.S. would still buy emerging market assets. The central bank has raised overnight money market rates by more than 300 basis points – a spate of tightening not seen since early 2008 – and sharply inverted the swap and the bond yield curve in less than two weeks.
From an offshore perspective, FX implied yields have jumped from a chunky 6 percent last month to well over 8 percent this week. But the risk-reward has not come cheap. For all the pain caused in the world of domestic interest rates, the Indian rupee has barely edged higher. Part of the reason is the Reserve Bank of India’s sledgehammer steps last week have been offset by other actions taken by the central bank and conflicting talk from government officials assuring lenders - the biggest players in the domestic bond markets - that these measures are temporary.
from Deepti Govind:
After bad economic news from Germany, China and the United States over the past few weeks, here are two more. Brazil and India, two of the world's largest emerging economies, are increasingly vulnerable to another crisis or to the eventual end of the ultra-loose monetary policies in developed economies after five years of a severe global slowdown.
Weak demand for Brazil's exports and the voracious appetite of local consumers for imported goods widened the country's current account deficit to 2.93 percent of GDP in the 12 months through March, the widest gap in nearly eleven years. In dollar terms, that amounts to $67 billion.
from Global Investing:
"Abenomics" -- Prime Minister Shinzo Abe's aggressive reflationary fiscal and monetary policy -- is widely praised for injecting optimism into the world's third largest economy and making Tokyo stocks the best performing equity market in the world this year.
However, in Japan, something odd is happening as a result of Abenomics -- a big shortage of squid.
In times of currency wars, it's best not to shoot yourself in the foot. By imposing several capital controls in the past years, Brazil might have tightened monetary policy right when the economy started to falter, Nomura's strategist Tony Volpon wrote in a research note on Friday.
Brazil's mediocre economic growth in the past two years has been a mystery, indeed. Some say it has been due to the global slowdown - which contrasts with steady growth elsewhere in Latin America. Many others blame Brazil's several supply bottlenecks. But then, why don't businesses see them as an investment opportunity?
from The Great Debate UK:
--Kathleen Brooks is research director at forex.com. The opinions expressed are her own.--
The French President has been in the press a lot recently. Firstly, there was the triumph in Mali. "Vive le France!" could be heard in the streets and the swift removal of the Taliban from Northern parts of the country is to be lauded. But after a rousing welcome in Timbuktu, Hollande might find he has a chillier welcome closer to home.
Ironically, an increase of capital inflows to Latin America in the last few years due to unappealing ultralow yields in industrialized countries and the region's relative economic success is posing a threat for development, according to a recent paper that provides wider background to BRIC criticism of the latest U.S. Federal Reserve´s quantitative easing.
The article, written by Argentine economists Roberto Frenkel and Martin Rapetti for the World Economic Review - an international journal of heterodox economics - warns about the possibility of a Latin American variant of the so-called “Dutch Disease”. This is a situation where a country suddenly finds a new source of wealth that makes its currency more expensive, hurting local exports and causing traumatic de-industrialization.