Currency movements among the major central banks involved in ZIRP (zero interest rate policies) may dominate market attention as we move beyond (or resolve eventually) the US fiscal cliff debate. The issue is that exchange rate movements among the ZIRP currencies of the US Dollar, Euro, Japanese Yen, and British Pound can be highly challenging given that they are all effectively running the same rate policies, but from a different economic growth and fiscal policy context. Except -- the fiscal policies are all defined by having too much debt -- which means that future currency movements may often be more about the politics of the fiscal decisions than anything else.
Thus, to understand the major currencies, we need to compare and contrast the fiscal policy repsonses to the overloads of debt. The presentation will combine updated economic outlooks, debt policies, and political events both to provide a global view as well as to show how the currency markets can serve as a leading indicator for shifts in sentiment in the markets about future policies. We will try to identify catalysts for market movements. Given the context from the mature industrial coutnries, exchange rates between ZIRP currencies and emerging market or non-zero rate industrial countries will trade in a risk-on, risk-off pattern until market participants are considerably more confident of the future. We will provide updated views on China, Brazil, and a few other emerging markets.
Blu Putnam
Chief Economist CME Group
blu.putnam@cmegroup.com
