Currency Warriors On Our Central-Bank Radar

Published 02/09/2015, 02:34 AM
Updated 05/14/2017, 06:45 AM

We make projections of Taylor rules incorporating the effects of recent EUR weakness and evaluate against market pricing to construct a central-bank radar.

This suggests upside potential for EUR, GBP and SEK, and downside in JPY and CHF on a 12M horizon. EUR weakness is thus likely to be temporary.

Differences in central-bank attitudes towards exchange rates mean that Taylor-rules are not a definite policy guide though - the EUR/DKK peg is a case in point.

We are short EUR/USD and long USD/JPY in our Danske Bank FX Trading Portfolio.

We recommend Scandi-based clients with USD income to hedge via option strategies to retain potential if we are right in projecting USD strength for another few months (see Market Guide - January 2015 , 30 January).

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