Currency markets are shifting but it isn’t a broadbased USD move and instead a series of domestic developments and riskaversion that is driving markets leading into today’s Fed meeting. TheTurkish central bank’s decision to raise rates has eased some pressure but the situation is far from resolved, leaving EM markets nervous and EM FX vol elevated (see bottom chart). Recent risk aversion in the EM began as China’s flash PMI disappointed and the G4 central banks strucka less dovish tone than expected (particularly in Davos). Today’s Fed isimportant, but so too is China’s upcoming release of the HSBC PMI(cons. 49.6) and the RBNZ decision at 3pm EST. Markets are nervous—asthey should be.
Read the full report: FX Daily
Scotiabank