Currency Concern Spreads
Risk appetite was generally flat throughout the US session on Tuesday but leaving aside general asset market performance, investors may be unnerved at the growing number of policymakers and lawmakers voicing concern over the state of currency markets and performance. Japanese commentary may have been the biggest driver of markets over the last few weeks, but Fed members joined the fray last week, with Philadelphia Fed President Plosser sounding off warnings over ‘currency wars’. On Tuesday, Norges Bank Deputy Governor Qvigstad said if the NOK remained at its current level, ‘it will affect’ the interest rate, implying cuts may be forthcoming to tame currency strength. Later in the day outgoing Eurogroup Chairman Juncker went further to warn the EUR was ‘dangerously high’. Add the usual interventionist policies of emerging markets and suddenly currency wars become a proposition which should not be dismissed so easily. Consequent volatility is not being reflected in markets yet, but we note that such rhetoric adds to the view that amid the current risk rally, markets might be complacent about some of the underlying risks still present. Ahead today, CPI figures are due in the Eurozone and the US. Overnight EURUSD traded 1.3279-1.3318, and USDJPY 87.95-88.88.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank