8 quick market questions: Read Chief Risk Officer Enrique Diaz-Alvarez’s answers
17/May/2016 • Currency Updates•
1. Do you think the Federal Reserve will hike US interest rates in June or September?
I believe June’s FOMC decision will depend on May’s employment report, to be announced in the first week of June. If the weak figure from April is temporary and the number of jobs increases to over 200,000 then a hike in June is quite possible.
2. Do you think the ECB could cut interest rates and increase QE? Or has Draghi already used all the economic tools within his power?
We think the ECB still has the capability to introduce additional easing measures if Eurozone inflation fails to increase over the next few months.
3. If the Fed’s rate hike is pushed back to September and the ECB doesn’t make a big move, do you see EUR/USD moving to 1.18 – 1.20 in a few months’ time?
The current levels of EUR/USD are already pricing in more gradual hikes by the Fed and we don’t expect to see Euro appreciation.
4. What explains recent Euro strength against the US Dollar?
The downgrade in expectations of interest rate hikes in the US. The Fed spoke about four rate increases in December 2015 but reduced this to just two by March.
5. Will the trend of Dollar appreciation versus the Euro return?
We believe that market expectations of rate hikes in the US are too low (barely one hike in 2016), and that, when appropriately increased, we will see the Euro resume its downward trend against the US Dollar.
6. Why is it widely expected that Sterling will depreciate against the Euro in the event of a Brexit in June?
Mostly because of the predicted deterioration in the UK’s economic outlook over the medium term. In particular, the UK would lose appeal as a destination for direct investment, which is the flow that has allowed the country to balance its persistent trade deficit in recent times.
7. What market factors do you consider when providing analysis for clients?
Our forecasts are based on two main factors. Firstly, the evolution of macroeconomic data and, secondly, the differences in monetary policy between central banks.
8. Is now a good time to protect margins by using risk management strategies such as forward contracts?
It’s always a good time to ensure your exchange rates are set at levels that protect your business’s margins from market volatility.
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