Credit Suisse has turned bearish on the U.S. dollar versus the other two G3 currencies for the first time since the greenback’s scintillating rally began in the middle of 2014.
The bank’s currency team, led by Global Head of FX Strategy Shahab Jalinoos, sees EURUSD rising to 1.17 and USDJPY falling to 110 over the next three months.
Concerns about monetary policy impotence—that central bankers will be unable to successfully reflate their economies—are becoming embedded in currency valuations, according to the analysts.
There’s “a growing fear that monetary policy is now ‘pushing on a string,’ at least from an FX perspective,” they wrote. “EUR and JPY are materially stronger now than levels before ECB chief Draghi hinted at more easing and the BoJ introduction of negative rates in January.”
Options traders doubt that the Bank of Japan in particular will be able to keep the yen on its back foot going forward—a development that would bode ill for its attempts to win a decades-long battle against deflation.
“Risk reversal skews are now generally bid for JPY again in the same manner as they were prior to the start of QQE in 2012–the risk of large JPY sell-offs linked to BoJ policy is gradually being priced out,” wrote Jalinoos & Co.
Meanwhile, in part due to fears that monetary stimulus from the ECB and BoJ will fail to bear fruit, investors are skeptical of the Fed’s ability to continue decoupling policy from that of other major central banks.
The much-ballyhooed divergence trade—which analysts at Credit Suisse were quite bullish on in November—is over, according to Jalinoos’ team, which highlighted “an obvious end to the monetary policy divergence trade when looking at rate differentials.”
“It goes without saying that the market is no longer expecting more Fed rate hikes in 2016,” the strategists concede.
The bulk of the initial move in USDJPY that started near the end of 2012 was predicated on presumed monetary divergence, with Prime Minister Shinzo Abe pledging easing on this front, while Ben Bernanke would soon set off the “taper tantrum” in May 2013.
A situation in which the Bank of Japan’s stimulus has run its course—at least on the currency—and expectations for negative rates in the United States continue to mount would send ripples through the entire foreign exchange complex and potentially other asset classes, to boot.
“A violent and persistent turnaround in U.S. rate expectations would certainly classify as the type of scenario that would upset the apple cart for most USD versus G10 forecasts, but especially for USDJPY,” the strategists wrote. “The market is not well positioned psychologically for this outcome.”
As the yen is typically viewed as a risk-off or safe haven currency—and because the USDJPY pair has tracked the S&P 500 fairly closely since Abe’s rise in the polls began—equities could also be adversely affected by a period of relative strength in the Japanese currency.
Naira to a Dollar Exchange Rate Dips to N462 at Black Market Amid Social Unrest
Youth Protests Weigh on Naira to a Dollar Exchange Rate on Black Market
The ongoing youth protest in Nigeria continues to weigh on the economic outlook and investors’ sentiment across the board.
The Nigerian Naira to a US dollar exchange rate declined by N1 from N461 on Tuesday to N462 on Wednesday and in the early hours of Thursday at the black market.
Against the British Pounds, the Naira exchanged at N600, down from the N592 it traded on Tuesday. This decline continues against Europe’s common currency as the Naira dipped against the Euro by N2 from N538 to N540 on the black market.
The nationwide protest by the Nigerian youth to curb police brutality and harassment on daily basis continues to disrupt business activities in Africa’s largest economy.
Nigerian youths are saying enough is enough after the death of several youths by the law enforcement agency, Special Anti-Robbery Squad (SARS), that was constituted to curb robbery but gone rogue and made extortions, harassments and in some cases killing of innocent citizens their means of livelihood.
Despite the government disbanding the unit and promise to redeploy officers to other existing units, commands and formations, the youths are saying they want a total discharge of corrupt officers and the entire reform of the Nigerian Police Force (NPF) before they will even consider backing down on the ongoing protest, especially after politicians started sponsoring thugs to attack peaceful protesters in Lagos and Abuja.
The Nigerian Stock Exchange closed flat on Wednesday amid rising uncertainty surrounding the government’s ability to de-escalate the situation given the fact that the youths no longer trust the administration or Nigerian government.
The Naira remained weak against global counterparts and expected to plunge further once the National Bureau of Statistics (NBS) release third-quarter Gross Domestic Product (GDP) report expected by many experts to plunge the nation into its second recession in four years.
Naira Declines on the Black Market on Tuesday
Naira Plunges Against Global Counterparts on Tuesday on the Black Market
The Nigerian Naira declined on Tuesday on the black market despite efforts by the Central Bank of Nigeria to prop up the value of the local currency against global counterparts.
The Naira declined by N4 from N457 per US dollar it traded on Friday to N461 on Tuesday morning. Against the European common currency, the Naira fell by N1 to N538 from N537.
However, the local currency improved by N3 against the British pound from N595 it exchanged on Friday to N592 on Tuesday.
Nigeria’s weak economic outlook continues to weigh on the Naira outlook, especially with the economy projected to enter recession in the third quarter.
Despite efforts to cushion the negative effect of COVID-19 on the nation’s economy, unclear policy path amid weak business sentiment and low foreign revenue generation needed to sustain economic productivity in a majorly import-dependent economy drag on Nigerian Naira value and the entire economic outlook.
Dollar to a Naira Exchange Rate Remains Unchanged on Black Market
Dollar to a Naira Exchange Rate Flat on Black Market on Monday Morning
The US Dollar to a Naira exchange rate remained flat on the black market on Monday morning as businesses and investors’ sentiment surged with an improved economic outlook.
The Dollar to a Naira exchange rate stood at N457 on the black market on Monday morning while the British Pound rate to a Naira was N595, better than the N597 it exchanged on Wednesday.
The Euro to a Naira rate stood at N537 on Monday, a N3 improvement from N540 it sold on Wednesday.
The Naira remained under pressure despite the recent improvement in value following the Central Bank of Nigeria’s decision to lowered the interest rate by 100 basis points to 11.5 percent.
Economic uncertainties as the nation prepared for a second recession in four years weighed on foreign direct investment and continues to drag on growth, especially after the World Bank predicted that the nation’s growth would contract by as much as 4.1 percent in 2020 and only rebound by 0.3 percent in 2021 due to its overexposed to the global oil market.
However, the multilateral financial institution supported President Muhammadu Buhari’s decision to remove oil subsidy and adjust the nation’s electricity tariff to reflect the actual consumption.
Still, it is uncertain if the recent measures by the Federal Government and the Central Bank of Nigeria would be enough to stimulate growth in the real sector of the economy and prop up the Dollar to a Naira exchange rate given the global health crisis.
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