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CURRENCY MOVES
& Central Bank Policy
The world’s central banks have split into two camps, the few that are likely to tighten and the majority
with easing on their agenda. This division has reintroduced the currency markets to an old
acquaintance: a dollar bull market. Our analysis plots the major central-bank moves
and considers how the rest of 2015 will play out.
March 18, 2015
Bloomberg Brief
Currency Moves
2
QUICKTAKE
Keep the (Cheaper) Champagne on Ice
CONTENTS
CENTRAL BANK MONITOR
At least 14 countries have recently cut
rates. What do they have in common?
PAGE 3
BY THE NUMBERS
Stronger dollar, weaker (almost)
everything else.
PAGE 4
BY SCOTT LANMAN
The almighty dollar is mightier than ever since the global financial crisis. As the U.S.
economy surges and most others slump, investors are flocking to it, enabling the U.S. to
borrow lots of money at low interest rates.
American consumers can feast on it, buying imported goodies for less. U.S. politicians
tout it as evidence of the economy’s eternal dynamism.
Other countries are driving their currencies down to make their goods more
competitive on the world market. Not the U.S. It stands out as the one nation that prefers
its money superpower-strong.
That’s a mixed blessing.
The high dollar hurts some American multinational companies’ earnings by reducing
the value of sales abroad. It pushes down inflation that’s already considered too low.
For the rest of the world, danger lurks in surging dollar-denominated debt sold in
emerging markets like Brazil and India; the stronger dollar makes those bonds harder to
repay. The U.S. Dollar Index, which tracks the greenback against six major currencies,
surged 12.6 percent in 2014 and touched an 11-year high in March. Higher U.S. interest
rates, expected this year, would make the dollar more attractive, pushing its value
higher.
Drug maker Pfizer said currency swings cut its revenue by 3 percent, or $449 million,
in the fourth quarter. A stronger dollar means a weaker yen, hurting U.S. automakers by
helping Japanese competitors like Toyota, which make more money on each car sold in
dollars.
A slumping euro means good things for companies in Europe that sell in the U.S. In
Africa, the rising greenback threatens to curb borrowing this year after countries
including Ghana, Ethiopia and Kenya took advantage of record low interest costs in
dollars to finance road building and power projects.
Then there’s a slowdown in the high-end home market in places like Miami, Las Vegas
and Los Angeles, where foreign buyers need more of their own money to cover prices in
stronger dollars.
The Treasury Department is unwavering in its allegiance to the strong dollar.
Elsewhere there are other opinions.
Commerce Secretary Penny Pritzker said in January that the potential impact on
American exporters makes the dollar’s rise “something to keep an eye on.”
At its January meeting, Federal Reserve officials noted the greenback’s strength would
be a “persistent source of restraint” on U.S. exports. Japanese policy makers are wary
that declines in the yen could damage confidence.
As Japanese and European central banks buy bonds to stimulate their flagging
economies, investors are likely to pour more money into the U.S.
The resulting rise of the dollar, warned Former Treasury Secretary Lawrence
Summers, could slow the economy significantly. So Americans should hold off on the
champagne, even if the strong dollar makes it a bargain. — For a full version of this overview, click the QuickTake
U.S. ECONOMY
The stronger dollar may weigh on the
economy and slow Fed progress on
rate normalization.
PAGE 5
EUROPE
The chances for euro-dollar parity;
how the British pound is navigating a
middle path; and why the Swiss franc
might continue to strengthen.
PAGES 6-10
ASIA
China's yuan market is signaling
further depreciation, while a revival in
Japan may stem the decline in the
yen. Policies may continue to diverge
elsewhere in emerging Asia. PAGES 11-14
COMMODITY FX: CAD, BRL
The oil slump has winded the
Canadian economy; Brazil's outlook is
much worse.
PAGE 15
EMERGING MARKETS
Dollar strength, expected Fed
tightening take a toll.
PAGE 16 TRADING STRATEGY
After a decade-long lull, interest in FX
momentum trading is reviving.
PAGE 17
COMPANIES OVERHEARD
Who's hurting from the strong dollar?
Condensed comments from U.S.
companies' first-quarter earnings calls
and recent presentations. PAGE 18
March 18, 2015
Bloomberg Brief
Currency Moves
3
CENTRAL BANK MONITOR
Easy Does It
Central banks in at least 14 countries have lowered their benchmark interest rates in the past month. What do they have in common?
For most, the answer lies in the last column of the table below. Headline consumer-price inflation is negative or below 1 percent in eight
of the countries that have cut in the four weeks to March 18 — and 12 of 24 if the time frame is widened to the past six months.
Plummeting oil prices that have dragged inflation lower have also hurt producers' economies, giving their central banks another reason
to ease. Of course, sorting by rate changes ignores two paragons of loose policy: the Bank of Japan and the European Central Bank.
Stuck at the zero lower bound, they're now relying on asset purchases to boost the economy and stoke inflation.
Source: Bloomberg. Japan excluded because its central bank no longer targets a benchmark interest rate.
Bloomberg Brief
March 18, 2015
Currency Moves
4
BY THE NUMBERS
The U.S. Dollar Against the World
The dollar is getting stronger, the euro
is sinking, and developing market
currencies are almost all weaker as
monetary policy in the U.S. and the euro
zone diverges.
Click the chart to launch an Interactive
Story Chart investigating the changes
globally.
Stronger Dollar, Weaker Everything Else
Ruble Leads the Way Down
Note: All data as of March 18. Record lows encompass the entire Bloomberg series for each currency. Euro data include a synthetic range covering
the period before its introduction in 1999. On a historical basis, the currency is 28 percent above its record closing low of $0.8272 on Oct. 25, 2000. March 18, 2015
Bloomberg Brief
Currency Moves
5
DOLLAR IMPACT CARL RICCADONNA, BLOOMBERG INTELLIGENCE ECONOMIST
From Strength, Weakness: Currency Appreciation to Pinch U.S. Growth
Those who think it can’t be war because
there are no losers have never lived in the
Rust Belt. History shows clear winners
and losers when currencies move.
The lessons from the Federal Reserve’s
experience in the aftermath of the
financial crisis are instructive. The
Bernanke Fed did not directly intervene in
currency markets, but it created
conditions which resulted in significant
dollar depreciation.
It accomplished this first by cutting rates
effectively to zero and promising to keep
them there for an extended period, then
through aggressive balance sheet
expansion via quantitative easing. The
mechanisms through which asset
purchases aided the economy were not
entirely understood at the time,
particularly since fixed-income yields
generally increased when various rounds
of QE were implemented, but a clear
channel did emerge via a weaker dollar.
While the Fed bristled at claims it was
specifically targeting the exchange rate,
its actions drove the trade-weighted dollar
to a three-decade low.
At the time, QE critics were dismissive
of the economic impact from a weaker
dollar — not unlike some of the refrains
echoing out of Europe presently. The
results speak for themselves.
A weak currency provides a double
dose of economic stimulus. Exports of
goods and services become cheaper in
international markets, and imported
goods become more expensive, both
supporting domestic production.
Exports are only about 12-14 percent of
U.S. economic output, so an impressive
pace of growth is required to significantly
impact growth. This is just what occurred
in the first two years following the
recession. Real GDP grew by 2.2
percent, of which more than 50 percent —
1.2 percentage points — was directly
attributable to exports. This was possible
because exports grew by 11 percent.
This growth engine was critical. Were it
not for exports, overall GDP would have
been closer to 1.0 percent — a pace
which would not have been sufficient to
reduce unemployment and begin sowing
the seeds of sustainable recovery.
Put simply: without exports, the U.S.
Export Reversal: New Orders Hint at Trouble Ahead
economy probably would not have been
able to achieve critical “escape velocity.”
What a weak dollar giveth, a strong
dollar shall taketh away.
The Fed appears increasingly cognizant
of the potential negative impacts of the
strong dollar, including “imported
deflation” and dwindling factory orders.
Appreciation cuts import prices, and in
turn weighs on core consumer inflation,
largely through falling goods prices. This
has already pushed the core CPI to the
lowest levels since its post-recession
rebound in 2011, and the trend will
probably further intensify in the near term
as long as dollar strength persists.
This matters for policy makers who,
having signaled willingness to boost rates
when inflation rebounds, may be stymied
by the core hitting new lows.
The impact extends far beyond the
Fed's inflation target as well, because it
creates a difficult pricing environment for
U.S. industry — especially manufacturing
— in both domestic and foreign markets.
There were signs of this in fourth
quarter GDP data, which did not fully
incorporate the cumulative currency
move. The trade-weighted dollar has
appreciated by an additional 10 percent
since the fourth quarter, so that data
provided only a hint of developments that
will intensify over the next several
quarters.
Imports surged 10.1 percent in the
fourth quarter compared to an
eight-quarter trailing growth rate of 2.4
percent. This is a sign that consumers
and businesses have begun to shift
toward cheaper, foreign-produced goods.
The more than 11-point slide in the new
orders component of the manufacturing
ISM survey over the last six months
provides further corroboration that
domestic industry is being squeezed.
Export growth was positive (3.2
percent), but the year-on-year trend is
now approaching the lows of the cycle.
The new export orders component of the
manufacturing ISM — a useful leading
indicator of exports — has fallen to levels
which suggest outright contraction may
be imminent.
In other words, the small but mighty
export “growth engine” is at risk of shifting
into reverse.
The headwinds from a stronger dollar
could significantly damp factory output,
and in turn weigh on the broader
economy. This may lead the Federal
Reserve to move less aggressively
toward rate normalization, in order to
avoid inflicting excessive pain on the
factory sector.
Bloomberg Brief
March 18, 2015
Currency Moves
6
EURO FUNDAMENTALS JAMIE MURRAY, BLOOMBERG INTELLIGENCE ECONOMIST
The Hardest Part Is Still to Come for the ECB’s QE
A weaker euro is a key channel for the
European Central Bank's quantitative
easing program to affect the economy. A
boost to demand for sovereign bonds is
intended to push down yields and send
investors hunting for better returns
elsewhere. On this metric, the policy is
already a resounding success. The hope
is that the resulting improvement in
competitiveness will help lift the euro
area's economic fog. A lot depends on
whether those nations needing the
biggest boost to demand will be able to
capitalize on the change to relative prices.
The euro has indeed slipped markedly,
but it remains to be answered how much
that owes to QE. Relative rates of return
between the euro area and the U.S. are
critical to that assessment. Here, it's
important to note that not all of the decline
in euro-area bond yields can be attributed
to the direct effects of QE.
Much of the slippage reflects lower
expectations of risk-free rates, a global
phenomenon. The 10-year swap rate has
declined significantly in both the U.S. and
the euro area in 2014 and early 2015.
The first chart shows that the euro-area
swap rate has fallen by more — traders
expect the ECB's main policy rate to
remain lower for much longer. That puts
substantial downward pressure on the
euro relative to the dollar.
Where QE has had a significant effect is
in suppressing yields on the assets that
aren't risk-free. Spain can now borrow for
10 years more cheaply than the U.S., and
the decline in its borrowing costs since
the beginning of 2014 has been
substantially larger than Germany's, as
the second chart shows. Overall, while
differences in expectations for policy rates
doubtless account for some of the
depreciation of the euro, asset purchases
look to have played a big role too.
In part, some of the recent declines in
bond yields and the euro reflect the
process of price discovery. Much of the
effect of QE on the bond market was
priced in well before the purchases
began, but it was never known with
certainty how much the ECB would have
to pay to pry enough bonds away from
their owners to meet its targets. The latest
moves in yields suggest it may have been
a bit harder than thought — the lower rate
Main ECB Policy Rate Seen Lower for Much Longer
Decline in Spain's Borrowing Costs Outpaces Germany's
of return that this has prompted may now
be weighing on the euro even further.
QE has probably played a big role in
pushing the euro down against the dollar,
but that's the easy part — anyone can
buy bonds, especially with a printing
press. Harder to judge is whether the
euro area will respond with significant
improvements in competitiveness.
First, exporters could push their prices
up (knowing foreigners can now afford to
pay more) and pocket the margin, rather
than aim for a bigger market share. Over
time, one would reasonably expect
competition to erode those margins but it
may take a while for more supply to come
on stream. Until then, that may moderate
the boost to the volume of exports and
real GDP.
Second, new exporting companies don't
appear out of thin air. The banking sector
has a big role to play in reallocating
capital away from domestic-facing
activities toward catering to the external
sector — and in some of the countries
most in need of a boost from external
demand, the banking sector looks to be
least able to perform that role.
There are nascent signs that the euro
area is turning a corner and lower oil
prices will create a bit of extra domestic
demand on top of that generated by QE.
Yet it is too soon to chalk up a success
for unconventional monetary policy.
March 18, 2015
Bloomberg Brief
Currency Moves
7
DOLLAR TRENDS CARL RICCADONNA, BLOOMBERG INTELLIGENCE ECONOMIST
Rate Differentials Indicate U.S. Currency on Course for Euro Parity
A rudimentary model constructed using
interest rate differentials between U.S.
and German yields has done an
impressive job at predicting euro-dollar
moves. This model suggests scope for
more dollar gains.
The chart shows this, depicting the
spread between the U.S. two-year
Treasury yield and the equivalent German
yield relative to the dollar-euro spot rate.
The correlation over the last decade is an
impressive 80 percent.
While this technique exhibits some
predictive power, foreign exchange rates
are notoriously difficult to forecast, as
they are driven by a complex array of
shifting factors, including capital flows and
expected rates of return. Still, the model
suggests that the dollar is likely to hold its
gains or appreciate further, given
expectations for further widening of the
two-year interest rate differential as
expressed by the forwards curve.
Presently, the spread is a little over 80
basis points. It is projected to be
roughly 170 basis points one year forward
and over 200 basis points in two years.
This is consistent with forward guidance
Bund-UST Yield Correlation Signals Path to Parity from the respective central banks. The
Federal Reserve is on course to initiate
policy tightening at some point later this
year, while the European Central Bank is
easing policy.
Based on this relationship, expectations
for the euro to trade below parity for an
extended period seem reasonable —
dependent, of course, on the willingness
of Federal Reserve officials to push
interest rates higher while much of the
rest of the world eases monetary policy.
Bloomberg Brief
March 18, 2015
Currency Moves
8
EURO TRENDS DAVID POWELL, BLOOMBERG INTELLIGENCE ECONOMIST
Why the Euro's Slide Might Overshoot Parity
The European Central Bank’s path to
sovereign bond buying has weighed
heavily on the euro, especially versus the
U.S. dollar. Diverging monetary policies
are likely to push EUR/USD toward parity,
with a chance of a slide beyond that
psychologically important level.
Quantitative easing has driven the
trade-weighted euro about 14 percent
lower during the last year by pushing
down market expectations of interest
rates in the euro area and by untethering
the peg between the single currency and
the Swiss franc. The spread between the
two-year swap rate for the euro and a
trade-weighted average of those of its
major trading partners has dropped in the
last 12 months to minus 0.47 percentage
point from minus 0.20 percentage point.
That measure of the euro dropped about
3 percent the day the Swiss National
Bank abandoned its peg.
The depreciation of the euro has been
the greatest versus the U.S. dollar over
the past year among the Group of 10
currencies. EUR/USD has fallen by about
24 percent.
The ECB is likely to maintain loose
monetary policy much longer than the
Federal Reserve to combat deflationary
pressures. The unemployment rate is still
1.5 percentage points above the OECD’s
non-accelerating inflation rate of
unemployment, which may even
underestimate the spare capacity in the
economy over the long term. The U.S.
jobless rate is close to its long-run
equilibrium rate. That is likely to continue
pushing investors in search of higher
returns into the U.S. from Europe.
With EUR/USD having peaked in the
summer of 2008, the currency pair’s
downtrend has further room to run before
it starts to look overly mature. Trends in
the exchange rate between the euro (or a
synthetic measure of the euro before its
introduction in 1999) and the dollar have
historically lasted five to eight years. After
peaking in January 1980, EUR/USD fell
over the next five years and then rallied
for the seven years that followed. After
hitting a cyclical top in September 1992,
the currency pair fell over the next eight
years before starting an eight-year rally in
October 2000.
Exchange Rate Reversals Triggered by Extreme Misvaluation
EUR/USD Trends Have Lasted Five to Eight Years The exchange rate may fall to about
parity. Major reversals of the currency
pair have been associated with at least a
25 percent over- or undershoot of the
10-year moving average. That level can
be viewed as an estimate of a currency
pair’s purchasing-power-parity equilibrium
value because studies have shown PPP
cycles last about a decade. In other
words, over a 10-year period, on average,
a pair should be at the fair value implied
by PPP. The 10-year moving average
currently stands at about 1.34.
The 25 percent threshold hasn’t acted
as a cap in the past. It merely acts as a
marker of extreme over- or
undervaluation that could trigger a
reversal. If the currency pair breaks
through the key psychological level of
parity and expectations begin to build in
the months ahead for additional monetary
easing from the ECB, EUR/USD would be
likely to start to slide toward its all-time
low of 0.82.
March 18, 2015
Bloomberg Brief
Currency Moves
9
BRITISH POUND JAMIE MURRAY, BLOOMBERG INTELLIGENCE ECONOMIST
Sterling Caught in the Crossfire Waits for Signs on BOE Path
The British pound has made a steady
ascent lately, beating a middle path
between a soaring U.S. dollar and a
plummeting euro. Behind those currency
moves is the divergence of monetary
policy between the U.S. and euro area.
The motivation for the differing
trajectories might best be illustrated by
the relative rate of unemployment. While
the American recovery has continued
broadly uninterrupted since the financial
crisis came to an end, the same cannot
be said of Europe — elevated
joblessness persists and has shown only
tentative signs of budging downward. Yet
it wasn’t until 2014 that ECB sovereign
bond purchases became a safe bet, and
the path of expected policy rates has also
declined substantially. Over a similar
period, the U.S. Federal Reserve slowed
and then stopped its asset purchase
program and it’s now eyeing its first rate
increase. Consequently, the euro has
tanked against the dollar.
Broadly speaking, U.K. monetary
policy has been restless without an
obvious move one way or the other during
this period. At the beginning of 2014, the first U.K.
interest rate increase wasn’t fully priced in
until well into 2016. That changed as the
year wore on, particularly after Bank of
England Governor Mark Carney gave a
speech in June that was widely
interpreted as hawkish. Subsequently,
expectations slipped again and are now
roughly back where they started.
Taking into account the U.K.’s trading
partners, sterling has been caught in the
crossfire. The trade-weighted exchange
rate has cut a path between the
strengthening dollar and weakening euro,
registering a more modest overall
appreciation.
That may soon change. With
uncertainty about the margin of slack
remaining in the economy, the Bank of
England has sensibly placed emphasis on
the wages data in determining when the
Rate Expectations Are Back Where They Started
GBP Cuts Path Down the Middle on Restless U.K. Policy
lift-off for interest rates should be. With
many compensation negotiations in April,
it shouldn’t be too long before the
earnings numbers give a more definitive
signal as to how much spare capacity
remains in the labor market. A strong
number may push the BOE closer to the
Fed’s rate-tightening path, while a weaker
one might prompt a delay. In either case,
the result would be a lurch in the value of
sterling.
Bloomberg Brief
March 18, 2015
Currency Moves
10
SWISS FRANC DAVID POWELL, BLOOMBERG INTELLIGENCE ECONOMIST
Strong Franc in the Hands of Nervous Swiss
As Switzerland struggles to recycle its
large current account surplus, the franc is
likely to continue strengthening and
become increasingly overvalued. The
trend would probably reverse on a
restoration of risk appetite, though that
appears unlikely to materialize in the
foreseeable future.
Switzerland has been unable to channel
its current account surplus into
international capital markets since the
onset of the euro crisis. Swiss residents
increased their net holdings of foreign
portfolio investment by 448 billion francs
from the start of 2000 through the end of
the first quarter of 2010, according to
calculations of Bloomberg Intelligence
using data from the Swiss National Bank.
The sum remained at about 426 billion
francs by the end of the third quarter of
last year, the latest reporting period.
As a percent of GDP, the country’s
current account surplus remains large at
6.4 percent at the end of the third quarter,
down from 11.7 percent of GDP at the
end of the first quarter of 2010. The
nominal effective exchange rate has
appreciated by about 16 percent during
that period.
The upward pressure on the currency
appears likely to remain unless either
Swiss savings are once again pushed
abroad or the current account surplus is
eliminated. Risk aversion may be
hampering purchases of foreign assets.
The elimination of a current account
surplus that has been persistently high for
decades also appears unlikely in the near
future, though an extended period of
currency overvaluation may eventually
trim global appetite for Swiss exports and
temper the imbalance.
The Swiss monetary authorities seem to
have lost their appetite for large-scale
intervention to prevent significant
appreciation of the franc, though they are
unlikely to completely refrain from
meddling in the foreign-exchange market.
The SNB had accumulated about 197
billion euros as part of its foreign currency
reserves before abandoning the peg
between the euro and the franc in
January. The SNB appeared unable to
Swiss Pause in Net Buying of Foreign Financial Assets
Swiss Current Account Surplus Still Large
stomach the potential for large losses
from euro depreciation as a result of the
European Central Bank’s quantitative
easing program.
The country will continue to suffer from
an overvalued exchange rate in the
meantime. The nominal effective
exchange rate is about 25 percent above
its 10-year moving average, a measure of
fair value.
Swiss investors taking a plunge into
foreign investments would likely trigger a
reversal for the franc. One of the first
signs of that process would be a
stabilization of the currency in the
absence of reserve accumulation. That
still seems like a distant prospect as the
euro crisis persists and a recovery in
global growth since the slowdown of 2011
remains elusive.
Bloomberg Brief
March 18, 2015
Currency Moves
11
JAPANESE YEN TOM ORLIK, BLOOMBERG INTELLIGENCE ECONOMIST
Japan's Revival May Mean End of Yen Declines
The yen’s weakness has been a
reflection of Japan’s. As the economy
shows signs of revival, the currency may
avoid further declines.
The 28 percent fall in the yen against
the dollar since the end of 2012
happened in two stages. The first came at
the beginning of 2013 in anticipation of
and in reaction to Japan's first round of
quantitative easing. The second started in
August 2014 in advance of the second
round of QE.
The consensus forecast calls for the
yen to end 2015 at 125 to the dollar,
down from around 121 as of mid-March.
It’s true that the coming first move on U.S.
interest rates will widen the rate
differential. Still, as that is the most widely
anticipated central bank move in the
world, it may take more than that for the
yen to gap down.
That suggests the forecast is pricing in
a further round of easing by the Bank of
Japan.
At first sight, the case for further easing
looks clear cut. BOJ Governor Haruhiko
Kuroda has staked his reputation on
hitting a 2 percent inflation target. A 0.2
percent year-on-year increase in prices in
January, excluding the impact of the sales
tax increase, is far off track. That explains
why about three-quarters of the
economists surveyed by Bloomberg
expect more easing by the end of the
year.
On closer examination, underlying
inflation dynamics are looking more
positive. Labor markets are tight, with the
unemployment rate at 3.6 percent in
January. That raises hopes for a
substantial boost in salaries during the
spring wage negotiations — providing
solid demand to underpin rising prices.
The Tankan survey shows firms are
operating at close to full capacity.
Inflation expectations, which the BOJ
says are a crucial component of its
strategy, are so far stable. The BOJ’s
household survey shows expectations on
a five-year time horizon have actually
edged up slightly. In a speech in March,
Deputy Governor Hiroshi Nakaso said
that if inflation expectations remain
unaffected by the oil price drop and
underlying trends in inflation are positive,
Yen Weakness Runs Ahead of Rate Differential
Tight Labor Markets May Keep BOJ on Hold
there is no need for monetary policy to
respond.
There are other reasons to expect the
BOJ to stay on hold. Massive purchases
are already distorting the operation of
government debt markets. ETF, REIT and
other markets where the BOJ may
expand its operations are much smaller in
size, and thus are much more prone to
distortion. Small businesses are
complaining that a weaker yen is hurting
their profits.
Put it together and there could be
enough to keep the BOJ on hold, even if
oil drags the CPI further down in the
months ahead. By the time October —
the most common pick for further easing
— rolls around, the impact of the oil
plunge will be fading and the story on
inflation may look a lot more positive. In
that case, bets on further easing, and a
weaker yen, will prove wide of the mark.
Bloomberg Brief
March 18, 2015
Currency Moves
12
CHINESE YUAN TOM ORLIK AND FIELDING CHEN, BLOOMBERG INTELLIGENCE ECONOMISTS
Dollar's Strength Is China's Weakness
A crawling peg with the U.S. currency is
a boon for China during periods of dollar
weakness. In times of dollar strength, it
threatens a bust.
A 25 percent climb in the dollar index in
the past year presents China with a
difficult choice. Following the dollar up
risks adding to the woes of exporters,
already suffering from higher labor costs.
Allowing the yuan to fall risks capital flight
and financial stress.
Signals from the market show
expectations of depreciation. The yuan’s
spot price is hugging the weak end of its
trading band. The offshore price is
weaker than the onshore. At 6.26 per
dollar as of mid-March, the yuan has
declined about 1.8 percent against the
greenback in the past year.
The only thing preventing a more
pronounced drop in the currency is the
central bank. Since the end of November,
the People’s Bank of China has been
using its daily fixing to claw back the
market losses of the previous day. On
occasion, that has meant pulling the
currency back a full 2 percent from the
last day’s close.
The currencies of China’s Asian
neighbors have been falling sharply. The
yuan’s moderate fall against the dollar
has still left it up 6 percent year on year
on a real effective basis. With a currency
war raging around it, and exports a crucial
source of demand in a flagging economy,
it may seem odd that China’s central bank
is playing the role of peace keeper.
At the top of the list of reasons is
concern about capital flight. China saw
record capital outflows in the fourth
quarter of 2014. Early signs suggest that
has continued into the start of 2015. A
pronounced fall in the yuan would add to
the incentive to exit. That would increase
volatility in banks’ deposit bases, adding
to risks to financial stability.
China’s overseas borrowing has been
growing fast. Data from the Bank for
International Settlements show foreign
claims on China rising to $1.7 trillion in
the third quarter of 2014, almost double
Bear Hug: Yuan Sticks to Weak End of Trading Band
Weaker Currency Adds to Incentives for Capital Flight
the $906 billion total at the end of 2012. A
weaker yuan would add to repayment
costs and raise financial stress for debtor
firms.
The consensus forecast is for the yuan
to end the year at 6.21 to the dollar, up
slightly from the current 6.26 spot price.
That seems too optimistic. Given market
pressure, the plight of the export sector
and risks from capital flight, something
between stability and mild depreciation is
the most likely outcome.
Bloomberg Brief
March 18, 2015
Currency Moves
13
KOREAN WON FIELDING CHEN, BLOOMBERG INTELLIGENCE ECONOMIST
South Korean Won Won't Hit Rock Bottom in Race Down
South Korean officials will likely feel
continued pressure to weaken the won to
support the country’s external sector as
near-term domestic growth prospects
deteriorate. The degree of further
depreciation may be limited by South
Korea’s huge current account surplus and
the potential for an economic turn-around
on pro-growth government policies.
The won has been trending lower
against the dollar since mid-2014, with an
unexpected rate cut by the Bank of Korea
on March 12 setting the stage for
additional depreciation in the months
ahead.
Korean policy makers have grown
visibly more concerned in recent months
at actions taken by foreign central banks
— including Japan's and Europe's — that
have led to depreciation of their
currencies. Korean exports account for
more than 50 percent of GDP. Korean
products from auto parts to electronics
compete head to head with Japan's in the
global market, and Europe is a major
export market. So any substantial
depreciation in the euro or yen that isn't
mirrored by the won stands to hurt
Korean exporter competitiveness.
While the won has fallen 5.3 percent
against the dollar in the past year,
sharper falls in the yen and the euro have
left it stronger on a real effective basis.
This likely added motivation for the March
rate cut.
China is also a major concern for
Korea. The region’s largest economy is
Korea’s biggest export market,
accounting for about one quarter of total
overseas sales in 2014. China’s imports
fell about 20 percent year on year in the
first two months in 2015. Expectations
that China’s GDP growth may decelerate
to 7 percent or lower this year from 7.4
percent last year damp Korea’s export
outlook and may provide government
officials with further impetus to weaken
the won.
Domestically, there is more room for the
BOK to cut. Even after three
25-basis-point rate cuts since August,
Korea’s inflation rate remains well below
the central bank's target. More interest
rate cuts, combined with an expected
liftoff by the Fed this year, would mean a
South Korea's Exports Have Decelerated
Won's Weakness Against Dollar Is Relative
narrowing won-dollar interest rate
differential. That promises to add to fund
outflows, deepening the persistent capital
account deficit and weakening the
currency.
Yet there may be limits to how low the
won can go. Korea maintains a large
current account surplus that totaled $89.2
billion, or about 6 percent of GDP, in
2014. The Bloomberg consensus forecast
is for the current account surplus to be a
similar proportion of GDP in 2015,
indicating strong demand for the won.
Additionally, looking further ahead,
economists forecast a gradual pickup in
South Korea’s economy, to 3.4 percent
GDP growth in 2015 and 3.6 percent in
2016. That may eventually reignite
investors' appetites for Korean assets.
Bloomberg Brief
March 18, 2015
Currency Moves
14
EMERGING ASIA TAMARA HENDERSON, BLOOMBERG INTELLIGENCE ECONOMIST
2015: The Year of Relative Value in Asian Currencies
The Philippine peso and Indian rupee
are out-performing peers in emerging
Asia this year, and are among the few
currencies that have gained ground
against the U.S. dollar. In contrast, all of
the currencies in the G-10 have
weakened against the greenback.
External dynamics — including Federal
Reserve policy, oil prices, China
rebalancing and currency wars —
suggest this divergence may persist into
year-end.
Fed Uncertainty: Risk appetite tends to
increase as uncertainty diminishes,
suggesting that once the timing and
trajectory of Fed rate hikes are known,
the U.S. dollar may weaken. A
"buy-the-rumor-sell-the-fact" phenomenon
is also supported by extreme positioning
in the greenback by non-commercial
accounts shown in U.S. Commodity
Futures Trading Commission data. The
emerging Asia currencies that have
benefited the most in the past from
improved risk appetite are typically those
with higher real yields and current
account deficits. India has both. Thailand
and Malaysia have the highest real yields
currently, while Indonesia also has a
current account deficit.
Deflation Mirage: The plunge in oil
prices since June was supply-driven. This
indicates a limited role for central banks
aside from ensuring no second-round
effects. With lower oil prices supportive of
discretionary spending, deflation risk in
most economies is low. Absent a further
plunge in oil, the impact on inflation and
economic growth will be temporary —
fading in the second half of the year as
the favorable basis of comparison erodes.
The currencies in emerging Asia that
benefit most from low oil prices are those
with higher consumption and oil import
concentrations, such as India. Growth in
the Philippines and Indonesia is also
consumption-driven, while South Korea
has a significant oil import share, or about
27 percent of total imports. As the oil
price effect on inflation fades into
year-end, the currencies of Asia's oil
producers — Malaysia and Indonesia —
have potential to outperform.
Asia's Divergent Currency Performance May Persist
Rupee, Peso Display Higher Risk-Adjusted Returns China Reform: China's rebalancing
from investment- to consumption-driven
growth benefits more trade-reliant
economies where discretionary consumer
goods and services comprise a large
share of total exports. In emerging Asia,
South Korea, Taiwan and Thailand are
more prominent members of the
automobile supply chain. Thailand and
Malaysia have the highest number of
tourists.
Currency Wars: The recent trend has
been to use the oil-related drop in inflation
as a reason to loosen monetary policy
and maintain export competitiveness.
Central banks in Malaysia, the
Philippines, Taiwan and Vietnam have yet
to engage in the currency war. Market
forces have already significantly
weakened the ringgit, which dropped in
tandem with oil prices. Competitive
devaluations, at best, provide a temporary
boost to growth. As inflation normalizes
into year-end, monetary policy may
appear too accommodative in Indonesia
and Thailand, as suggested by Taylor
Rule metrics.
March 18, 2015
Bloomberg Brief
Currency Moves
15
CANADIAN DOLLAR RICHARD YAMARONE, BLOOMBERG INTELLIGENCE ECONOMIST
Loonie May Continue to Weaken as Central Bank Cuts
The Canadian dollar hit a six-year low
against the U.S. dollar after the February
employment report showed the impact of
the oil slump. The Bank of Canada will
probably try and get ahead of
deteriorating economic conditions by
cutting its benchmark interest rate an
additional 25 basis points. This could
cause the loonie to retest the 1.39 level
per U.S. dollar last seen in 2004.
The Bank of Canada’s next meeting is
April 15; 11 of 19 economists surveyed by
Bloomberg expect another cut during the
second quarter.
The Bank of Canada will probably view
a weaker loonie as a positive booster for
exports, while lower rates will positively
support non-oil business sentiment and
investment. These tailwinds should help
keep at bay the full negative impact of
lower oil prices on Canada’s economy.
Canada Looks to Weaker Loonie to Support Exports
BRAZILIAN REAL MICHAEL MCDONOUGH, BLOOMBERG INTELLIGENCE ECONOMIST
Brazil's Real Has More Room to Fall on Domestic Hurdles, Fed Action
The Brazilian real is the worst
performing emerging market currency
year-to-date. A deterioration in domestic
outlook that has fueled the decrease is
likely to persist. Expectations of Federal
Reserve tightening are also in play, and
will likely continue to be a factor.
Brazil faces substantial hurdles in
achieving its 2015 primary surplus target
of 1.2 percent of GDP. Any perception
that the reform agenda is lagging would
further impair investor confidence.
Last year, Brazil realized a primary
fiscal deficit for the first since 1997, at
around 0.6 percent of GDP. It has
experienced a primary deficit in every
month but two since May 2014. A
worsening drought in the country will also
begin to weigh on economic growth and
sentiment.
To thwart rapid depreciation and stem
inflation, the central bank has conducted
175 basis points of rate increases since
October. A collapse in commodities
helped push the current account into
deficit and FDI failed to compensate.
This heightens the importance of highly
Brazil Real in Fundamental Rut
volatile portfolio flows to offset falling
demand for reais. It comes at a time while
Brazil’s worsening political and economic
outlook deters foreign investor appetite,
even at higher domestic rates.
Eventual tightening by the Fed would
likely further reduce demand for emerging
market assets, including the real. Brazil’s
central bank may also reduce foreign
exchange market intervention.
Bloomberg Brief
March 18, 2015
Currency Moves
16
EMERGING MARKETS MICHAEL ROSENBERG, BLOOMBERG ECONOMIST & BOB LAWRIE, PRODUCT MANAGER
Caught Between Capital Outflows and Weak Domestic Demand
A combination of dollar strength and the
anticipation of tighter Federal Reserve
policy is exerting a toll on
emerging-market asset prices. For the
most part, these declines significantly
exceed those that occurred during the last
selloff in the second quarter of 2013 —
the "taper tantrum."
Emerging-market equity prices, as
reflected in the MSCI-EM equity index,
are down roughly 14 percent since
mid-2014. JPMorgan's EM bond spread
index (EMBI+), which captures the spread
on EM bonds relative to U.S. bonds, has
surged to 410 basis points from 275 basis
points in mid-2014. And the returns on
EM FX carry-related strategies have
crumbled in the past nine months, as a
long position in a basket of eight EM
currencies funded with U.S. dollars has
dropped 19 percent since mid-2014.
On top of all this, commodity prices
have tumbled some 38 percent over the
last nine months, which has a negative
impact on EM economies whose exports
are linked to commodity-price
developments.
All of these adverse price trends are
exerting significant downward pressure
on capital flows to EM economies. The
Institute of International Finance reports
that net capital flows to EM economies
have once again moved below average.
Our own modeling work suggests that a
bigger slide in EM capital flows lies in the
offing.
Bloomberg has constructed a high
frequency composite index to gauge
capital flows to EM economies on a
real-time basis. The Bloomberg EM
Capital Flow Proxy index tracks the trend
in EM equity prices, bond spreads, carry
trades and commodity prices to assess
whether the demand for EM assets as a
whole is rising or falling. This composite
index is highly correlated (0.85) with EM
portfolio flows as compiled by the Institute
of International Finance.
The chart shows that the Bloomberg
EM Capital Flow Proxy index is currently
sliding at a much faster pace than the
Bloomberg's Proxy-Flows Index Slides
IIF’s monthly EM Capital Flows Tracker
index. If the strong correlation between
the two series continues to hold, we
would expect to see a further slide in
actual emerging-market capital flows.
The principal advantage of the
Bloomberg Proxy index over conventional
measures of EM capital flows is that the
Bloomberg index is available on a
real-time basis and thus should coincide
with changes in actual capital flows.
Indeed, the recent slide in our EM Capital
Flow Proxy Index appears to be following
a time-honored script that has played out
in past Fed tightening cycles.
Most studies find that changes in
Federal Reserve policy have had a big
impact on capital flows to EM economies,
although the relationship is by no means
perfect. In several instances, Fed
tightening moves have had a significant
negative influence on EM capital flows —
notably the early 1980s tightening, which
may have helped trigger the EM debt
crisis in 1982; the 1994 tightening, which
may have triggered the Mexican peso
crisis later that year; and the 2013 "taper
tantrum" that helped precipitate a major
slide in EM asset prices. If past trends
offer a hint to possible future moves, then
EM capital flows may remain vulnerable
going forward, particularly as we get
closer to the day when the Fed Funds
rate finally lifts off.
Investors may wonder what measures
EM policy makers will consider to stem a
further slide in EM capital flows. Raising
interest rates to attract capital inflows is
one possible step, but such a move would
run against the need for lower interest
rates for domestic economic
considerations. The need for lower rates
is evidenced by the IIF's EM GDP
monthly coincident economic indicator,
which has been sliding in recent months.
EM policy makers may also be reluctant
to hike rates at a time when the euro is
sliding sharply versus the U.S. dollar. A
policy rate boost would run the risk of
undermining the competitiveness of EM
economies versus their euro-area
counterparts. In the end, it may be in the
best interests of EM policymakers to
simply ride out the storm, as attempts to
counter capital outflows might do more
harm than good.
Bloomberg Brief
March 18, 2015
Currency Moves
17
TRADING STRATEGY MICHAEL ROSENBERG, BLOOMBERG ECONOMIST, & BOB LAWRIE, PRODUCT MANAGER
FX Momentum Trading Makes a Comeback
After a decade-long lull, interest in FX
momentum trading is beginning to turn.
Profits are returning too. The U.S. dollar
has rallied against most G-10 and
emerging-market currencies, generating
significant returns for trend-following
investors.
For investors who make tactical shifts
among FX trading styles (such as carry,
momentum and valuation), the dollar
gains are probably signaling a shift in
favor of FX momentum and away from FX
carry. It would be the first such signal in
favor of momentum since 2009. Currency momentum and trend
following trading strategies have long
been popular trading tools for FX market
participants who rely on technical trading
rules for both portfolio and risk
management purposes. Numerous
academic studies document that a variety
of trend-following trading models would
have generated significant risk-adjusted
profits in the past, at least in the 1970s,
1980s and early 1990s. More recent
studies have found that whatever excess
returns were available during that earlier
period largely disappeared during the
Great Moderation and subsequent years.
Momentum strategies' returns depend
on extended periods of directional
currency movements. Looking at the
frequency of losing and winning trades in
a typical trend-following trading strategy,
there are often more losing trades than
winning trades. Profits can still be earned
over time if losing trades are closed
quickly while winning trades are allowed
to run. If the macro environment
generates more muted swings in
exchange rates, however, one runs the
risk that the correctly predicted up-moves
do not carry far enough to offset the large
number of small losses.
At the same time that the macro
environment was becoming more benign
during the pre-financial crisis period, the
FX market in general was becoming more
efficient. As more players — notably
CTAs, hedge funds and mutual
funds/ETFs — entered the market
Returns Swing Back to Momentum
The Deutsche Bank currency momentum and carry-trade strategy indexes calculate the
cumulative return on a hypothetical benchmark portfolio that is long the three G-10 currencies
with the highest 12-month spot (or carry) return and simultaneously short the three G-10
currencies with the lowest 12-month spot (or carry) return, all versus the U.S. dollar.
seeking to exploit the excess returns
available to momentum traders, their
collective actions began to arbitrage
those profits away. With FX volumes
surging, transaction costs declining and
the electronic dissemination of
information, the growing list of active
market participants were able to
essentially eliminate whatever excess
returns were still available in the new,
benign macro environment.
Most studies find that over the course of
the 1990s, the profits derived from
momentum trading gradually declined and
virtually disappeared for G-10 currencies
by the early 2000s. Momentum profits
were found to be still available in the case
of EM currencies where trading was
generally less crowded and thus less
efficient. Also, the macro backdrop in the
EM sphere was more conducive for
trend-following strategies as significant
differences in EM GDP growth rates,
inflation rates and real interest rates
worked in tandem to generate relatively
long and pronounced swings.
The macro environment became less
benign in the 2000s, with the initial
shocks of the bursting of the tech bubble,
the 9/11 attacks and after-effects in the
early 2000s, and then the global financial
crisis in 2008 and the weak economic
recovery that followed.
Studies find that in the aftermath of a
major financial market downturn, risk
appetites tend to be low and perceived
tail-risk probabilities tend to be
considerably higher than normal. These
studies generally find that the returns to
momentum trading turn down during such
periods.
Not only did the returns on currency
momentum investing weaken significantly
in the first decade of the new millennium
and slightly beyond, but the returns on
equity momentum investing performed
poorly as well. Indeed, the 2000-09 period
marked the first decade that equity
momentum investing posted a negative
return since the 1930s.
Bloomberg Brief
March 18, 2015
Currency Moves
18
COMPANIES OVERHEARD
Dollar Strength Punches Hole in Some Exporters' Earnings Statements
Many U.S. companies operating overseas are hurting from the stronger dollar. But a little preparation — or hedging — goes a long way.
Below, we've condensed comments from first quarter earnings calls and recent presentations. The comments have been edited.
GAP CFO Sabrina
Simmons (Feb. 26
earnings call): "Both
the Japanese yen and
the Canadian dollar
have depreciated by
about 30 percent over
the past two years.
With the continuing depreciation of these
and other currencies against the dollar,
our reported results have been and are
expected to be negatively impacted.”
Weyerhaeuser CEO Doyle Simons
(Jan. 30 earnings call): “A stronger dollar
generally is not a positive for
Weyerhaeuser. In terms of Japanese
logs, what we've seen is the demand has
not been affected by the strong dollar. But
if it continues, it could potentially affect
our price. In terms of Chinese logs, the
weak ruble is making Russian logs less
expensive than U.S. logs. That, of course,
reduces the price that the Chinese are
willing to pay. With that said, there is a
practical limit on just how much Russia
can provide and the other thing is if prices
are not at desirable levels, we are able to
redirect some of our logs to domestic
markets, which are holding up very well.”
3M VP of investor relations Matthew
Ginter (March 17 presentation): "In the
late 1990s when the Asian currencies
devalued, our hedging approach was a
little bit more short term. We were
hedging in our company maybe over a
two-to-three-month horizon. So on the
heels of that, we decided to leg in to the
strategy that we've been working since
2000, which is actually hedging 12
months forward on the developed market
currencies. And we do that on a rolling
12-month basis. In mid-2014, we made a
decision on a couple of the majors
including the euro to just extend the
horizon out to 24 months, still maintaining
an overall roughly 50 percent hedge
ratio."
Wal-Mart CFO
Charles Holley (Feb.
19 earnings call): “The
strong U.S. dollar
caused a negative
impact of over $5
billion on revenue.”
Pilgrim's Pride CEO William Lovette
(Feb. 12 earnings call): "“I think the most
important evidence [in Mexico] is through
the recent devaluation of the peso to the
dollar, we've not seen chicken demand go
lower. It actually continues to be very
strong in Mexico. That's one of the export
markets where demand for leg quarters,
for example, has remained very strong." Apple CFO Luca Maestri (Jan. 27
earnings call): "The biggest impact came
from the Japanese yen, the Russian ruble
but also from euro, Australian dollar,
Canadian dollar. As we look forward and
we look into particularly the March
quarter, the foreign exchange headwinds
will be stronger in Q2 than they were in
Q1."
VF Corp. CFO Robert Shearer (Feb. 13
earnings call): “Most of the impact on the
transactional side results from the recent
decision of the Swiss government to
move away from pegging their currency to
the euro. Because our European
businesses are headquartered in
Switzerland, in U.S. dollars our reported
headquarter expenses increased. The
reason these transactional impacts are
not more significant is that we have a
strong and efficient hedging program that
offsets nearly all of these influences.”
Inter Parfums CFO Russell Greenberg
(March 12 earnings call): "Our earnings
are positively affected by a strong dollar
because approximately 40 percent of net
sales of our European operations are
denominated in U.S. dollars, while almost
all costs of our European operations are
incurred in euro."
Delta Air Lines
President Ed Bastian
(March 3 presentation);
"The strong dollar is
clearly having an
impact on fuel prices.
We haven't done the
math, but net-net, we
believe we're a beneficiary to a strong
dollar."
Caterpillar CEO Douglas Oberhelman
(Jan. 27 earnings call): "The rising dollar,
I would expect in 2015 we would see
more of that. It will not be good for U.S.
manufacturing nor the U.S. economy.
How that is offset against the lower oil,
diesel, gasoline price, I don't know how it
works out, but certainly anybody
producing in Japan, the U.K. or Europe,
particularly Germany, is going to have
quite an advantage over their American
competitors. We've worked hard to
diversify our manufacturing footprint.
We're large exporters and have a large
cost base in Japan, Europe, U.K., as well,
so we're taking advantage of that, but
overall, I don't think it's a very good
positive for U.S. manufacturing." Marriott SVP of investor relations
Laura Paugh (March 5 presentation):
"The U.S. is not particularly dependent on
international arrivals, but when you go to
Europe, 30 percent of demand in our
European hotels comes from outside
Europe. So a weak euro makes that
market more attractive, and we are
hopeful to see more Americans travelling
to Paris this year. If you haven't booked
your flight, you probably should because I
think this is a real bargain and may not
last long. In the U.S. we're rather
insulated, but outside the U.S. there's lots
of opportunity."
Visit NI ORANGEBOOK<GO> on the terminal for
more C-level economic commentary.
Bloomberg Brief
March 18, 2015
Currency Moves
19
FX MARKETS FOCUS BLOOMBERG NEWS & VIEW
EURO
CARRY TRADE
Venezuela Keeps Hold on
Mexichem as FX Eats Profit
Euro Seen Draghi’s Savior as
QE Targets Economy
Yen Carry Trades at 2008
High Boost Inflation Hope
He may be reluctant to admit it, but the
biggest benefits from Mario Draghi’s
bond purchases are likely to come from
the plunge in the euro.
The European Central Bank’s
quantitative-easing program will boost
euro-region inflation by 0.3 percentage
point this year, with a weaker exchange
rate doing most of the work, according to
economists surveyed by Bloomberg. The
euro tumbled to a 12-year low as the
central bank unveiled details of its first
week of purchases.
“That’s the transmission mechanism
that might be the most powerful,” said
Hans Joerg-Naumer, head of
capital-markets analysis at Allianz
Global Investors, which oversees $412
billion. “They want to keep the euro
exchange-rate low.” Click here for more.
Borrowing yen to buy higher-yielding
assets hasn’t been this popular since the
global financial crisis. That’s a rare piece
of good news for the Bank of Japan’s bid
to achieve 2 percent inflation.
Financial institutions borrowed 10.2
trillion yen ($84 billion) to send to
headquarters overseas in November last
year, the most since the same month in
2008, BOJ data show. The indicator of
yen carry trade activity has been above 9
trillion yen every month since July, after
the central bank doubled the size of a
program providing cheap funds to lenders
last year. Click here for more.
— David Goodman and Andre Tartar
Hey Auto Bulls, BMW Has
Been Hedging for Years
This year’s 12 percent plunge in the
euro has ignited the biggest rally on
record in automakers and helped push
the DAX Index above 12,000. Demand for
ways to protect gains is also soaring.
Options on BMW and Volkswagen are
the most expensive in more than two
years relative to those on the Euro Stoxx
50 Index and contracts on Daimler
climbed to their highest price since
October 2013, data compiled by
Bloomberg show. All three have rallied
more than 36 percent this year.
But investors such as Dirk Thiels at
KBC Asset Management say the
advance may have gone too far, in part
because currency hedges from
companies will limit the benefit to
earnings. Click here for more.
— Sofia Horta e Costa
— Kevin Buckland and Shigeki Nozawa
EMERGING MARKETS
Fragile Five Down to Three
as Fed Looms
The Fragile Five is down to three.
In August 2013 as the Federal Reserve
considered when to slow its quantitative
easing, Morgan Stanley identified the
five major emerging markets with the
most vulnerable currencies: Brazil, India,
Indonesia, Turkey and South Africa.
Now, as Fed officials debate how soon
to raise interest rates for the first time
since 2006, India and Indonesia may
have dodged the bullet. Morgan Stanley
economists say they’ve enacted enough
economic reforms to have passed “the
point of inflexion away from their old
models of growth.”
More pain before any gain is the
scenario Morgan Stanley economists see:
Higher Fed rates and a rising dollar could
help impose a “catharsis” and force them
to act.“The next 12-18 months may make
things sufficiently worse so they can then
get better,” they said.
Click here for more.
— Simon Kennedy
Mexican companies operating in
Venezuela are enduring a failing
foreign-exchange system that’s draining
profit.
The outlook for local units of companies
such as Mexichem and Coca-Cola
Femsa is dimming as plunging crude
prices and the world’s fastest inflation
erode the value of the local currency.
Click here for more.
— Adam Williams,Katia Porzecanski,Patricia Laya
VIEW
How Asia Should Defend
Against the Rising Dollar
Can Asia beat the rising-dollar curse?
The question is far from academic
considering the central role that a
strengthening U.S. currency played in
sparking the region's 1997 crisis, as well
as Latin America's own financial woes a
decade earlier. When the dollar slides,
liquidity flows into emerging markets,
pumping up growth and assets. As the
dollar rallies, it can act like a gargantuan
money magnet drawing much-needed
investment away from the developing
world. Click here for more.
— William Pesek
China Has a Strategy for
Winning the Currency Wars
There's more than one way to win a
battle. You can inflict increasing damage
on your opponent, which is what most of
the world is doing to the U.S. Or you can
gain territory — which is what China is
doing as its currency steals more and
more of the global market. Click here for
more.
— Mark Gilbert
Click here for more Bloomberg
FX news and commentary.
For analysis, see the Bloomberg
Intelligence Currency Dashboard.
March 18, 2015
Bloomberg Brief
Currency Moves
20
Bloomberg Brief
March 18, 2015
Currency Moves
21
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Fielding Chen
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+852-2977-4830 U.S. Economist
Josh Wright
jwright136@bloomberg.net
+1-212-617-3794 Chief Euro-Area Economist
David Powell
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+44-20-7073-3769 Chief Asia Economist
Tom Orlik
torlik4@bloomberg.net
+86-10-6649-7211
Economics Editors - U.S.
Anne Riley
ariley17@bloomberg.net
+1-212-617-0061
William C. Johnsen
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+1-212-617-0509
Ben Baris
bbaris1@bloomberg.net
+1-212-617-2459 James Crombie
jcrombie8@bloomberg.net
+1-212-617-3590
Reprints & Permissions
Lori Husted
lori.husted@theygsgroup.com
+1-717-505-970