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2017-01-16
China Currency Basket: Little Red Riding Hood, or the Big Bad Wolf?

China rung in the new year by adjusting the weightings in their currency basket, and adding an additional 11 currencies into the mix.  The numbers of currencies in the basket has risen from 13 to 24.  The biggest impacts from this change are the dilution of the role of the USD in their basket, and added weighting of the KRW, one of their biggest competitor nations in terms of global exports, and one of the few currencies that have depreciated faster than the Yuan.

 

The chart below shows how the Yuan has been appreciating against the currency basket, while depreciating against the USD. 

 

bp160117

 

While the complaints of Chinese devaluation have subsided significantly over the past year, Trump brought it back into the limelight, spending much of his campaign blaming China for America’s economic woes, and vowing to name China a currency manipulator on his first day in the White House.  This would...



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2017-01-09
What can we expect from 2017?

As promised in last week’s report, this week we look ahead and discuss the major themes likely to impact currency markets for the year ahead. A new US President, a rapidly changing political landscape in Europe and diverging monetary policy amongst the World’s major central banks implies that market conditions in 2017 are likely to be as challenging if not more difficult than last year.  Our forecasts for 2017 remain unchanged from where they finished last year.

GBP/USD

2016 witnessed a huge shift in our GBPUSD outlook.  We went from one of the most bearish forecasters on GBP pre-Brexit (not a bad call in hindsight) to one of the most bullish by the end of the year. Our current 12-month forecast of 1.30 is above the Bloomberg poll average (1.25) but it is still well short of the most bullish forecasters (1.70 from Standard Bank, 1.62 from Commonwealth Bank of Australia and...



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2017-01-03
A look back at 2016

Twelve months ago, the UK referendum on EU membership was a big focal point, but a date hadn’t even been called, the probability of a Trump presidency was so small that is was simply written off as a publicity stunt and the chances of Leicester City winning the Premiership… I won’t go on.

Needless to say, 2016 was a year of unexpected outcomes, resulting in extreme moves in the currency markets (particularly for sterling). In traditional fashion, we take this opportunity to look back at how our market forecasts fared last year before looking ahead to what we might expect from 2017 in next week’s report.

 

GBP/USD

2016 was clearly a year of two halves for GBP/USD. Prior to the referendum on 23rd June, GBP/USD had traded a relatively tight range, largely between 1.40 and 1.50. There was a general expectation that the Fed would continue to tighten monetary policy having hiked rates...



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