Standard Life Investments

Published Article

FX&MM - Currency Round-up - November 2012


 

The foreign exchange currency market is generally quiet, with low and falling volatilities, and with currencies playing second fiddle to other asset classes. Correlations between currencies and equity markets are beginning to wane and more country specific influences are emerging. Nevertheless politics around the world, and its impact on currency policy, continues to be a significant driver of foreign exchange moves.

The European fiscal integration debate has been pushed off the top of the agenda but remains lingering in the background and will surely re-emerge during 2013. The main new concern is the US Fiscal Cliff which, in extremis, could push the US back into recession. Ironically, the dollar will probably outperform should the negotiations fail as a bad outcome for the US will benefit risk aversion strategies. Lower house elections in Japan are causing a stir as frontrunner Abe (LDP) is promoting a more aggressive BOJ QE and inflation policy which implies a reversal to the Yen’s long term uptrend. Finally, the new Chinese Government announced that more currency flexibility is likely over time.

Over the longer term we expect a lower Euro and see the risks of a much weaker Yen.

Ken Dickson, Investment Director - Money Markets and Foreign Exchange, Standard Life Investments