Relative monetary policy is back on the agenda in the global FX markets
DANSKE BANK. Relative monetary policy is back on the agenda in the global FX markets. Although Yellen’s statement in her semi-annual testimony to Congress yesterday was quite neutral, we still expect that forward guidance will be changed in March in the sense that ‘patience’ will be removed from the FOMC statement.
We expect the first rate hike to arrive in June and still call for a broadly stronger USD over the coming 3-6 months. In our view, the USD should strengthen as long as we are waiting for the first rate hike, particularly versus currencies that are backed by ultra-loose monetary policy, such as the EUR, JPY, CHF and SEK. We forecast EUR/USD at 1.10 in 6M and expect USD/JPY to shoot higher to 125 in 6M.
In the Scandi FX markets, monetary policy will also be in focus today as the Riksbank releases minutes from its monetary policy meeting on 11 February when it unexpectedly decided to cut interest rates and announced a SEK10bn QE programme. In our view, the Riksbank’s ambitions to fight any disinflationary tendencies should not be underestimated. It is ready to do more and we expect another 10bp within 6M and we therefore see mainly upside risks to EUR/SEK over the coming months. Focus will be directed toward inflation and inflation expectations – pivotal data that could trigger unscheduled action by the Riksbank. We target EUR/SEK at 9.70 in 3M.