Markets

FX

China’s property sector, monetary policy, and exchange rate

With China’s property sector – and economy more broadly – struggling, we think more PBOC rate cuts are on the way this year, which we expect to result in further falls in the country’s government bond yields and a weakening of its exchange rate.

18 January 2022

Our outlook for fx-hedged returns in 2022

When it comes to developed markets (DMs), we suspect that fx-hedged returns will be significantly better than unhedged returns for US dollar-based investors in foreign-currency-denominated assets.

17 January 2022

We do not expect the recent dollar weakness to last

Despite several events in the US this week which would usually point to a stronger dollar – the highest US inflation print since the early 1980s, hawkish comments from both Chair Powell and Vice Chair Brainard, and a sharp rise in short-dated government bond yields relative to those in most other countries – the greenback fell this week. We think there are several possible explanations, including rising commodity prices, rotation out of the US tech sector, stretched long dollar positioning, and the fact that US money markets have already priced in a fairly aggressive rate path.

14 January 2022
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The implications of the Russia-Ukraine crisis

The deadlocked end to talks between Russia, the US and NATO and subsequent hawkish noises from Russian officials have caused a risk premium to emerge on Russian asset prices and will keep the prospect of tighter Western sanctions on the table. The downside risks for the ruble and Russian assets are building, as are the upside risks for European natural gas prices. In view of the wider interest, we are also sending this Emerging Europe Economics Update to clients of our Commodities Overview, Energy, FX Markets and Global Markets services.

Why we still think the renminbi will weaken

China’s currency was remarkably stable against the US dollar in 2021 and appreciated against other major currencies. But we doubt that trend will continue this year: a slowing economy, monetary policy easing, and a gradual normalisation of China’s current account all point to a weaker renminbi. In view of the wider interest, this FX Markets Update is available to clients of our China Service.

13 January 2022

Dollar drop is at odds with increasingly hawkish Fed

The US dollar has started the year on the backfoot and there are several factors that may weigh on it further in the near term. But we think that the Fed’s increasingly rapid shift towards a tighter policy stance will eventually push the greenback higher against most other currencies this year.

13 January 2022

Key financial market calls for 2022

We do not think the returns from many financial assets will be as good in 2022 as they were in 2021. For a start, we envisage a sell-off in government bonds in most places, reflecting the outlook for monetary policy. And, in general, we foresee an underwhelming performance from equities, including in the US and China. We expect this backdrop to be accompanied by a further broad-based rise in the US dollar. In view of the wider interest, this Global Markets Update is also available to clients of our Asset Allocation & FX Markets services.

13 January 2022

The outlook for high-beta DM currencies in 2022

We think that rate differentials and commodity prices will be the key factors driving the relative performance of six “high-beta” DM currencies in 2022, continuing last year’s trend. We expect all these currencies to lose ground against the US dollar this year, although we think that a more hawkish Riksbank and Bank of England will mean that SEK and GBP hold up best, while our forecast of falling energy prices, especially that of European natural gas, suggests to us that NOK will do worst. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

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