...and how to fix it
View results now
Enduring strength in the euro might derail any nascent recovery.
The longstanding one-way bet on USDCNY has been in disarray, but worse might be to come, as China looks to its FX regime to cope with credit issues, and likely defaults this year, threatening volatility in the structured-product market.
Although current account deterioration, persistent capital outflows and the Ukraine crisis would seem to weaken rouble, the central bank’s flexible FX regime should keep the currency out of turmoil, say analysts
A shock policy-driven fall in the onshore spot rate has ignited speculation that a widening of the exchange-rate band is on the cards, while others are unsure the 'two-way' volatility presages a structural shift.
Global macro trends will normalize, boosting volatility and FX returns, argue analysts, despite the unflattering returns of FX hedge funds, the fall in AUM of currency-specific funds last year – even as the industry received bumper inflows – and recent high-profile failures.
The market tremors from the FX-fixing scandal and subsequent probe – triggering a flurry of fines, litigation cases and prosecutions – is set to reverberate for years to come. Euromoney investigates the fallout for global banks and possible reforms.
Emerging markets (EMs) are showing greater differentiation in risk correlations, despite the media hype, but notable risk correlations persist elsewhere for currency markets, especially economies tied to the commodities sector.
Sunday’s win in Tokyo’s gubernatorial election for Abe supporter Yoichi Masuzoe was a fillip to the PM’s economic programme, but faltering exports, weak sequential economic data and a peak in output/inflation suggest the yen needs to be much weaker for Abenomics to play out.
A more optimistic picture of the eurozone economy is clouded by deflationary pressures, which are especially perilous in Greece. There is no easy fix, but a cheaper euro would help.
The past few days have seen a spike in global markets’ volatility, a broad-based sell-off in many emerging markets’ currencies, and interest rate hikes in India, Turkey, and South Africa, raising fears this rout in the EM world might gather momentum.
Global current-account rebalancing and exchange-rate misalignments account for the emerging-market rout, according to the Keynesian school of thought that looks at monetary trends and flow of funds.
CEO’s endorsement big boost to the City; renminbi bond issuance globally at record levels.
The Fed added insult to emerging-market injury when it failed to acknowledge the EM rout this week, confirming the resolutely domestic focus of its monetary stance despite the international spill-over effects. The move reignites the debate about global monetary co-ordination.
Forget the doom over currency wars – the dollar-led monetary system boosts global stability, while China’s fixed exchange-rate regime poses risks, argues the IIF’s Charles Collyns, a former US Treasury official, as debate rages over the role of the dollar in the emerging world, in particular.
Increasing divergences in interest rates around the globe are set to herald the return of the carry trade as a foundation stone of the dealing environment, superseding the RORO- and monetary policy-influenced FX trading of the past few years.
Foreign-exchange market tremors are likely to reverberate for years to come as the global probe deepens, triggering fears of regulatory overkill.
The recent loosening of rules regarding leverage ratios and collateral by the Basel Committee on Banking Supervision might boost banks’ available trading resources, but FX is not out of the regulatory woods.
The bear case for EM FX markets has gathered momentum, with more and more analysts questioning the medium-term to long-term investment case.
Regulators have woken up to the currency’s potentially huge impact on the global payments system, given the decentralized, virtual and anonymous nature of the peer-to-peer network.
Although market players discern substantial differences between the fragile-five economies – notably in their current-account profiles – they remain, as a group, especially vulnerable to domestic and international market shocks, says bearish analysts.
ESMA has had frequent discussions over the definition of liquidity during the past three years and is mindful of the need to monitor the impact regulations such as Mifid II could have on liquidity on the FX markets, its executive-director tells the Association for Financial Markets in Europe.
The addition of JPMorgan and Citi to start-up trading platform ParFX marks the acceleration of the platform’s growth as it plans to open to the buy side in the summer.
As the Bank of England conducts a review into what its officials knew of FX benchmark manipulation, observers call for more robust adherence to trading best practices.
Amid litigation fears and calls for greater communication transparency, financial institutions have imposed heavy restrictions on traders’ electronic communications. However, social trading is here to stay and new platforms, such as Saxo Bank’s TradingFloor.com portal, are capitalizing on the gap in the market.
Given monetary interventions since the financial crisis, FX volatilities have erred on the low side and should remain depressed, challenging easy FX profits. However, the risk premium in emerging market (EM) FX is now trading back in line with equities rather than G10 FX, presenting trading opportunities.
London and Luxembourg are at loggerheads to become Europe’s leading offshore renminbi hub – although they wouldn’t let you know it.
As more financial scandals continue to emerge, regulators and banks are hoping technology and new internal controls will allow them to get to grips with the rogues. Trading floors might never be the same again.
The west African republic’s recent interest-rate hikes and foreign-exchange regulation changes are only short-term measures to halt the free-falling cedi. Structural changes will be needed for meaningful change.
Surveys suggest that virtual currencies look a safer bet than local stocks and property.
Top banks face greater risks in 2014 from shaky economic outlooks, indiscriminate reputational damage from market scandals, strict collateral rules, increased competition from ECNs and historically low market volatility.
Concrete advances towards the full tradability of the Chinese currency are at last seemingly being made, helping to rebalance the country’s growth model but heaping on short-term risks to China’s economic and financial stability.
In a trading world in which a broader policy mandate for central banks is firmly in operation, and where risk appetite is in decline, the failure of another single-strategy fund from QFS Asset Management highlights why multi-strategy funds appear to be the way forward.
With global economic growth still stuttering, currency depreciation has become a zero-sum game for central banks, and recent developments in some key currencies have shown that fears of an inflation undershoot or outright deflation will remain an important driver for their currency policies.
As competition between financial hubs heats up, London’s ambition to become the western destination of choice for offshore renminbi received a boost from crucial market players this week, following a flurry of successful renminbi-related developments in the City.
From the carry candidates, the diminished safe havens, and the new negative balance-of-payments club, FX trading strategies are navigating a differentiated and complex global landscape.
Fiscal slippage, less FDI and lower export prices make Ghana among most vulnerable; Eurobond access still cheap
An in-depth guide to global currency wars; how Beijing is seeking to globalize the renminbi, through currency swaps and trade-financing facilities; the rise of the offshore bond market; and how fee-hungry banks are salivating at the prospect of the RMB’s growth.
Contact Us |
Capital markets |
Regions & Emerging markets |
Surveys and awards |
Back issues |
Euromoney store |
Useful links & Related events |
Site Map |
Do more with Euromoney |
The material on this site is for financial institutions, professional investors
and their professional advisers. It is for information only. Please read our
Terms and Conditions,
before using the site.
All material subject to strictly enforced copyright laws. ©
Euromoney Institutional Investor PLC.