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SystematicEdge releases November FX commentary

In its latest FX commentary, SystematicEdge helps companies exposed to currency risk navigate the troubled waters of FX markets in a Covid-19 world by identifying the main trends and drivers of major currencies, such as USD, RMB, EUR, GBP, JPY, AUD, CAD, and CHF.

US monetary policy decoupling from Europe and Asia

Central banks’ monetary policy: The US Federal Reserve is already communicating about potential rate hikes in 2022 and a reduction in US Treasury bond purchases, which should result in higher longterm yields. The Fed is expected to announce the start of its tapering this week, while other major central banks are expected to keep their target rates unchanged till the end of next year: ECB (-0.50%), BoJ (0%), PBoC (2.20%).

Impact on currencies: Given anticipations of higher US rates, the USD has been strong against most currencies, except the RMB, which strengthened 1% in October. We see two main reasons. First, the RMB is supported by China’s solid economic fundamentals with September exports up 28.1% YoY to US$305.7bn and interest rates that remain attractive (short- and long-term yields close to 3%). Second, given the massive US deficit, which should worsen under Biden’s presidency, the US is unlikely to let their cost of funding increase much. We expect the Fed rate to remain within the [0.10% ; 0.50%] range till end-2022.

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