FX&MM – Currency Wrap
15 March 2010
We continue to expect a pro-longed lower for longer interest rate environment, where policy makers avoid policy error. In these circumstances risk appetite will stabilise and currencies with sustainable yield will remain attractive. We do, however, expect a greater variation in currency performance as the combination of fair value misalignment and discounted news drive a clearer ranking in potential returns.
Some recent trends have scope to continue. We continue to favour the Swedish Kroner. It is still low relative to its fair value estimates and the authorities are looking to increase interest rates. As they are relaxed about a stronger currency, there is a powerful combination of positive drivers in place.
Other currency trends may change. Sterling’s recent fall has coincided with a poor run of data and with signs that the election will be closely contested. Moreover, the Bank of England’s Monetary Policy Committee has appeared to extoll the value of a weak exchange rate in the current economic environment. However, with the pound now at forty year lows against some currencies, sterling is undervalued, under-owned and there is lot of bad news in the price. This may be the year that sees a change in fortune for the pound.
Ken Dickson, Investment Director – Foreign Exchange and Money Markets, Standard Life Investments
This article was first published in April 2010 edition of FX&MM Magazine.
