Fed, BoJ And BoE To Help EMEA Markets In 2013

2012 has been a surprisingly good year for the EMEA currencies and particularly the Polish zloty and the Hungarian forint have seen fairly strong gains. We think there are overall two reasons for the fairly positive performance. First of all, the euro crisis - even though certainly not over - has eased somewhat and fears of a disintegration of the European currency union have been reduced.

Second and equally if not more important, the Federal Reserve has stepped up monetary easing, which has done quite a bit to improve global risk appetite and that is certainly positive for the EMEA currencies. Looking at 2013 we are fairly optimistic that most of the region's currencies will do well as the Bank of Japan and the Bank of England are likely to take the lead from the Federal Reserve and step up monetary easing. That should make carry trades attractive - something that certainly will help the EMEA currencies.

However, the positive performance of the EMEA currencies has effectively also meant a tightening of monetary conditions in the region and this, combined with very weak growth in most of the eurozone, has hurt EMEA growth over the past couple of months.

Fairly strong currencies and weak growth have triggered interest rate cuts across the region in 2012 and we expect more monetary easing in 2013. Growth looks set to recover slowly and inflationary pressures are nowhere to be seen.

Looking at 2013 we are fairly optimistic that most of the region’s currencies will do well as the Bank of Japan and the Bank of England are likely to take the lead from the Federal Reserve and step up monetary easing. That should make carry trades attractive – something that certainly will help the EMEA currencies.

With currencies likely to remain fairly strong and to potentially get even stronger we expect most EMEA central banks to continue to ease monetary policy. That should eventually help the recovery to get under way in the region but we certainly do not expect a boom in 2013.

Concluding, 2013 is likely to be a fairly good year for the EMEA currencies, rates should continue to drop and we are likely to see a moderate recovery in growth across the region.

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