FX Quarterly for Third Quarter 2017

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In this edition we highlight:

  • Five themes for quarter three – ECB and Fed policy, an analysis of the Fed’s composition, key political events on the horizon, and what it all means for currency markets.
  • A landscape of Emerging Market countries that has to be navigated carefully, with an eye toward strong economic fundamentals and low political risks.
  • Masashi Murata also offers an overview of Emerging Market countries.
  • Currency Forecasts and an analysis of productivity and wage growth.

Read the full Q3 2017 FX Quarterly.

Dollar Breaks Out Against Yen

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The dollar is at new lows for the year against the euro and Swiss franc.  Draghi’s comments earlier that transitory forces are dampening price pressures were seen as broadly similar to the Fed’s leadership’s assessment about US prices.  The implication is that the ECB will announce tapering its purchases as it extends them into next year.  

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From the Securities Lending Trading Desk

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Bullish sentiment for U.S. assets leads to increased IPO activity. In Asia, one of Japan’s largest car airbag manufacturers filed for bankruptcy on Monday. China’s domestic equities will join MSCI’s benchmark indexes, marking a landmark step in the continued integration of the nation with the global financial system. The Finnish construction company, Yit Oyj has sought to acquire Lemminkainen Oyj as it bids to increase its footprint in northern Europe.

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And Yet it Moves: Understanding Why Italy’s Threat is Exaggerated

new businessToward the end of 2015, Portugal bailed in some senior creditors in addressing a failed bank.  Many observers were aghast.  This was thought to be horrific and uncivilized by some of the very same people who are critical of the EU and Italy’s decision not to bail in senior creditors in the two failed regional banks in Italy.    

They were wrong about Portugal.  It was not a watershed event that spurred capital flight from Europe.  And they are wrong about Italy.  This does not end banking union, and if Europe moves to two-speed, as some proposal for EU reform post-Brexit suggested, it will not be because of Italy and the EU’s decisions regarding Veneto Banca and Banca Popolare di Vicenza.

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Drivers for the Week Ahead

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  • The US, Japan, and the Eurozone all report their preferred inflation measure in the days ahead
  • Two of Italy’s banks become the second and third banks in the EMU to be subject to the supervisory authority of the ECB
  • If the Senate cannot pass a healthcare reform bill, it will raise more doubts about the broader economic legislative agenda

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