FX Global currency watch O Despite
ther themes for Q2 include a focus on the election race in the
U.S. where President Obama will likely face off in November against the probable Republican candidate Mitt Romney, who won some significant primaries and also received key endorsements in the past week or so from both Jeb and George W. Bush.
the market’s kneejerk
reaction to Fed Bernanke’s recent comments on an ‘easy’ monetary policy remaining in force for the foreseeable future, which were taken as ‘risk-on’ or USD bearish, we continue to believe that the USD may gradually gain against most currencies in the short-term. Not only because Bernanke’s remarks were
arguably taken out of context (a series of Fed
governors had been on the wires in the days prior, alluding to rate hikes being nearer to reality than
implies),
current market but
also
pricing because
investors may likely grasp onto the psychological notion that both the prospective promises and the actual results of elections generally bring about some period of positive change, not always permanent but nonetheless a wave to ride.
If this happens we would expect investment flows to benefit the Dollar, perhaps in part based on perceptions of future economic performance: a N.Y. FED survey released on March 28, 2012, projects U.S. unemployment falling from around 8% presently to around 6% in early 2013, and also the fact that the U.S. may be the next hot spot due
to slowdowns in China (GDP projected falling from 9.5% to 7%), Australia and of course Japan.
Who knows, perhaps the President of the new U.S. administration will allow the vast wealth of U.S. corporations currently sitting offshore denominated in foreign currencies to be repatriated at beneficial tax rates, helping spur domestic investment and therefore consumer demand and ultimately job creation? “Win, win and win”…
O
f all the developed countries
out have recently there facing challenges,
Japan is probably going to find it perhaps the toughest. Yes, exporters
found
some solace in the exchange rate’s reversal with USD/JPY having made a potentially multi- decade low at around 75 to the Dollar. As we go to print this cross is trading at 82, having been as high as the mid 84s quite recently. With gaping and growing deficits, a declining demographic where the population cannot replace itself and an increasing debt burden on all ages of the population, it seems that the Japanese Yen may no longer be the immediate ‘safe haven’ for fast money that it has deemed to be by many since the 2008 crisis.
In fact we see a monthly close 14 FX TRADER MAGAZINE April - June 2012
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