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FX Crossroads

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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




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