Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>I explore the 2021 winners and losers among EM currencies, leading into the discussion on which of these performances were appropriate and which currencies may offer opportunities this year.</li>
<li>The currencies to track this year for opportunities to buy are Chilean peso and Peruvian sol, and to sell are Colombian peso and South African rand. </li>
<li>Among currencies that already look appealing to buy are the Indian rupee and the Thai baht, while the Chinese yuan and the Czech koruna appear expensive.</li>
</ul>


I explore the 2021 winners and losers among EM currencies, leading into the discussion on which of these performances were appropriate and which currencies may offer opportunities this year.
The currencies to track this year for opportunities to buy are Chilean peso and Peruvian sol, and to sell are Colombian peso and South African rand. 
Among currencies that already look appealing to buy are the Indian rupee and the Thai baht, while the Chinese yuan and the Czech koruna appear expensive.


Not All Winners Are Equal: 2021 EM FX Outliers and Implications for 2022

<ul>
<li>The volatility of the US dollar has risen sharply in recent weeks with the dollar appreciating strongly starting in early November but coming off the highs on the Omicron variant.</li>
<li>I expect the dollar's volatility to stay high whether the Omicron variant turns out to be as big a threat to the economic recovery as feared or not.</li>
<li>For EM currencies, the environment is therefore likely to be less supportive and it's best to hedge exposures with the euro and consider beta-neutral relative-value trades.</li>
</ul>


The volatility of the US dollar has risen sharply in recent weeks with the dollar appreciating strongly starting in early November but coming off the highs on the Omicron variant.
I expect the dollar's volatility to stay high whether the Omicron variant turns out to be as big a threat to the economic recovery as feared or not.
For EM currencies, the environment is therefore likely to be less supportive and it's best to hedge exposures with the euro and consider beta-neutral relative-value trades.


Implications of Higher Dollar Volatility for EM Currencies

<ul>
<li>Mexico's rate curve steepened following the last monetary policy meeting, suggesting that the market was expecting a bigger rate hike than the 25 bp delivered.</li>
<li>I expect the curve to resume bear-flattening as the curve prices in more rate hikes on the back of high inflation and growth turning positive again in Q4.</li>
<li>The pace of rate hikes may be increased when the new governor takes the helm in 2022, rather than at the December meeting.</li>
</ul>


Mexico's rate curve steepened following the last monetary policy meeting, suggesting that the market was expecting a bigger rate hike than the 25 bp delivered.
I expect the curve to resume bear-flattening as the curve prices in more rate hikes on the back of high inflation and growth turning positive again in Q4.
The pace of rate hikes may be increased when the new governor takes the helm in 2022, rather than at the December meeting.


Mexico’s Rate Curve to Continue Bear-Flattening

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<ul>
<li>Last week's spike in US asset prices, including US Treasuries, in the wake of gangbuster US CPI-inflation data for October, has proved short-lived.  </li>
<li>However, EM currencies have outperformed developed currencies since 1st November thanks partly to EM central bank policy rate hikes, a lack of currency contagion and domestic macro data.</li>
<li>We focus on low-volatility Asian currencies, the under-pressure Norwegian Krone, Polish Zloty,  Hungarian Forint and Euro and the importance of the release of UK retail sales data on Friday.</li>
</ul>


Last week's spike in US asset prices, including US Treasuries, in the wake of gangbuster US CPI-inflation data for October, has proved short-lived.  
However, EM currencies have outperformed developed currencies since 1st November thanks partly to EM central bank policy rate hikes, a lack of currency contagion and domestic macro data.
We focus on low-volatility Asian currencies, the under-pressure Norwegian Krone, Polish Zloty,  Hungarian Forint and Euro and the importance of the release of UK retail sales data on Friday.


FX Round-Up – Calm Before the Next Storm

<ul>
<li>The Hungarian central bank increased the size of the rate hike from the previous meeting, but it failed to provide much support to the currency.</li>
<li>I expect the forint to lag in the near term unless the central bank turns more aggressive because real rates remain negative and the carry of the currency is low.</li>
<li>Complicating the task of the central bank are the upcoming election in 2022, which has led to the prime minister ramping up pre-election spending, adding to inflationary pressures.</li>
</ul>


The Hungarian central bank increased the size of the rate hike from the previous meeting, but it failed to provide much support to the currency.
I expect the forint to lag in the near term unless the central bank turns more aggressive because real rates remain negative and the carry of the currency is low.
Complicating the task of the central bank are the upcoming election in 2022, which has led to the prime minister ramping up pre-election spending, adding to inflationary pressures.


Forint to Lag Even as the Hungarian Central Bank Raises the Pace of Rate Hikes

Mexico

The Mexican peso is the official currency of Mexico. 

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Not All Winners Are Equal: 2021 EM FX Outliers and Implications for 2022

I explore the 2021 winners and losers among EM currencies, leading into the discussion on which of these performances were appropriate and which...

Gautam Jain, PhD, CFA

Implications of Higher Dollar Volatility for EM Currencies

With the US dollar volatility rising, the environment for EM currencies has turned less supportive and it's best to hedge exposures with the euro...

Gautam Jain, PhD, CFA

Mexico’s Rate Curve to Continue Bear-Flattening

I expect Mexico's curve to resume bear-flattening as the curve prices in more rate hikes on the back of high inflation and growth turning positive...

Gautam Jain, PhD, CFA

FX Round-Up – Calm Before the Next Storm

Interest rate and FX vol has subsided with directionality in EM and developed market currencies driven by domestic macro data and monetary...

Olivier Desbarres

Forint to Lag Even as the Hungarian Central Bank Raises the Pace of Rate Hikes

I expect the forint to lag in the near term unless the central bank turns more aggressive because real rates remain negative, the carry of the...

Gautam Jain, PhD, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)