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12 Dec 2014
Currency wars on-going – ING
FXStreet (Barcelona) - “2014 marks the sixth year of the global currency war – or the race to reflate one’s own economy via a weaker currency” says Chris Turner, Global Head of Strategy at ING.
Key Quotes
“Six years after the Global Financial Crisis the currency war is still very much on-going. Increasingly it looks like the ECB balance sheet expansion is primarily a means to weaken the EUR given TLTROs seem unlikely to re-ignite the bank lending channel anytime soon. President Draghi frequently cites the effects of Fed & BoJ QE on the exchange rate and clearly his expectation (first expressed in March this year) is that the EUR will fall. In addition the EUR may well now have to factor in some political risk premium from Greece. At the height of the Eurozone crisis, break-up premium saw EUR/USD trading some 5-7% below levels implied by the traditional financial drivers.”
“Despite rising volatility in the JPY, the BoJ remains at the forefront of those looking for a weaker currency. The weakness of the opposition suggests PM Abe faces no serious challenges to his reform agenda and that the BoJ will maintain rapid balance sheet expansion through-out 2015 – and perhaps 2016 too. And JPY weakness is dragging down those currencies formally managed against it, such as the SGD, as well as those currencies whose exporters compete in third markets, such as KRW.”
“Whether rallying by default, or by US asset markets offering the growth story so much in shortage, we prefer the dollar rally to continue. We last raised our dollar forecasts in early September. Since then we have seen greater clarity on the ECB’s balance sheet plans and fresh QQE from Japan. This month we are raising our dollar forecasts again and now see EUR/USD at 1.10 and 1.00 end 2015 and 2016 and $/JPY pushing to 130.”
Key Quotes
“Six years after the Global Financial Crisis the currency war is still very much on-going. Increasingly it looks like the ECB balance sheet expansion is primarily a means to weaken the EUR given TLTROs seem unlikely to re-ignite the bank lending channel anytime soon. President Draghi frequently cites the effects of Fed & BoJ QE on the exchange rate and clearly his expectation (first expressed in March this year) is that the EUR will fall. In addition the EUR may well now have to factor in some political risk premium from Greece. At the height of the Eurozone crisis, break-up premium saw EUR/USD trading some 5-7% below levels implied by the traditional financial drivers.”
“Despite rising volatility in the JPY, the BoJ remains at the forefront of those looking for a weaker currency. The weakness of the opposition suggests PM Abe faces no serious challenges to his reform agenda and that the BoJ will maintain rapid balance sheet expansion through-out 2015 – and perhaps 2016 too. And JPY weakness is dragging down those currencies formally managed against it, such as the SGD, as well as those currencies whose exporters compete in third markets, such as KRW.”
“Whether rallying by default, or by US asset markets offering the growth story so much in shortage, we prefer the dollar rally to continue. We last raised our dollar forecasts in early September. Since then we have seen greater clarity on the ECB’s balance sheet plans and fresh QQE from Japan. This month we are raising our dollar forecasts again and now see EUR/USD at 1.10 and 1.00 end 2015 and 2016 and $/JPY pushing to 130.”