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FX Crossroads

Special edition: Focus on inflation and FX

Wed, Jun 25 2008, 15:09 GMT
by Danske Research Team

Danske Bank A/S

Summary and conclusions

• • In this edition we focus on the impact of rising inflation on currency markets – whether through consumer or energy prices.

• • In the first article we argue that rising inflation could be bringing to an end 10 years of stable disequilibrium in global financial markets, causing an upset to the recycling of capital from Asian FX reserves and Middle Eastern current account surpluses, just as financial leverage could decline further.
  

• • In the second article we consider the most recent re-pricing of the outlook for the G10 central banks. We identify where central banks are in their cycles, and also the driving factors going forward. We generally expect money market rates to end the year well below what is currently implied. From a relative perspective, we see most value in selling USD and GBP against continental Europe and AUD.
  

• • In the final article we explore the link between oil prices and currency movements. We identify four G10 currency pairs that have moved less than the recent increase in oil process would suggest. All other things being equal, the rise in oil prices has increased the upside risk on EUR/USD and EUR/JPY, and the downside risk on USD/CAD and EUR/NOK (USD/NOK).

• • FX Crossroads is published every other Wednesday. Next publication date is 9 July 2008.

• Download full FX Crossroads with charts

Published on  Wed, Jun 25 2008, 15:19 GMT

Archive

• EUR: Where's my 75bn?
  Published On Wed, Aug 6 2008, 12:43 GMT
• Why the kiwi cannot fly, and at what level NOK/SEK will break the range
  Published On Wed, Jul 23 2008, 15:09 GMT
• GBP set to weaken further over summer
  Published On Thu, Jul 10 2008, 09:45 GMT
• Special edition: Focus on inflation and FX
  Published On Wed, Jun 25 2008, 15:09 GMT
• G10: FX implications of rising food and energy prices
  Published On Wed, May 28 2008, 15:24 GMT

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http://www.danskebank.com/ | danskeresearch@danskebank.com

Legal disclaimer and risk disclosure

This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.