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If it does, policymaking will get even tougher for Mario Draghi and the European Central Bank, who are already grappling with inflation at a four-year low and well below the bank's target.
In 2013, the euro was the best performer among the majors, gaining almost five percent against the dollar, wrong-footing the consensus view in Reuters polls during that period.
The latest poll suggested once again that the euro is set weaken over the coming year in anticipation of a dollar rally as the U.S. Fed is widely expected to end its massive stimulus programme and hike interest rates next year.
By Swaha Pattanaik
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
A rising single currency has confounded and hurt European exporters. An increasing number are becoming euro bulls, but their conversion could be ill-timed. While the currency’s rally may not be over, the ECB seems too unhappy with euro strength for it to last past autumn.
By Andy Mukherjee
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
A confused U.S. Federal Reserve has added to the muddle in emerging markets.
At their meeting that ended on March 19, the nine voting members of the Federal Open Market Committee (FOMC) wriggled out of a previous commitment to start increasing interest rates after unemployment had fallen to 6.5 percent. To assure markets that overnight rates will stay at near-zero levels, the committee promised instead to seek maximum employment and 2 percent inflation.
Brazil's current account deficit will probably narrow this year. That may sound as a reassuring (or rather optimistic) forecast after the recent sharp sell-off in emerging markets, which prompted Turkey to raise interest rates dramatically to 12 percent from 7.75 percent in a single shot on Tuesday. But that was the outlook of three major banks - HSBC, Credit Suisse and Barclays - in separate research published earlier this week.
The gap, a measure of the extra foreign resources Brazil needs to pay for the goods and services it buys overseas, will probably shrink to 3.0-3.4 percent of GDP in 2014, from 3.7 percent last year, they said.
In the words of Inigo Montoya, let me explain. No, there is too much. Let me sum up.
The market's most immediate issues remain tied specifically to what's going on overseas, particularly in Turkey. There, monetary authorities are meeting on a potential interest rate hike as a way of getting on top of the inflation problem (inflation's at 7.5 percent, and the central bank's lending rate is, uh, 7.75 percent).
Among the BRIC nations, Brazil’s the one that’s been repeatedly whacked with a brick in the last couple of years, seeing its currency depreciate and its stock market trashed as it steadily ratchets up interest rates to an expected 10.25 percent this evening (or perhaps even 10.50 percent).
Most emerging nations were hit hard in the last year as the Federal Reserve announced it would start changing its strategy toward reduced bond buying, which will reduce some liquidity among dealers and result in less cash sloshing around in the vast ocean of world markets.
European shares will be the best performers next year, according to the latest Reuters poll of more than 350 strategists, analysts and fund managers. Frankfurt’s DAX is already up nearly 20 percent this year and is forecast to rally another 10 percent in 2014.
But the experts in foreign exchange that Reuters surveys each month are also saying that the euro, just above $1.37, and not far off a two-year high against the dollar, will fall.
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.
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.