He believes that the outlook for several G10 economies contrain plenty of downside risks though ongoing Fed large scale asset purchases will temper USD´s upside.
He expects further Euro weakening on growth/crsis concerns and due to lingering expectations of additional ECB policy easing. Yen could come under pressure for much of 2013, especially if the LDP win the upcoming election. He writes, “LDP officials have been vocal about aggressive policy easing. Additionally, Japan’s continued structural trade deficit will also help weaken JPY.”
Moving onto Sterling, Kim notes that it should remain resilient against EUR on its perceived safe haven status. He believes that the caveat is that additional BoE monetary accommodation and softer economic data still have GBP above its long term equilibrium on a trade weighted basis. Kim feels that EUR/GBP could remain supported, conditional on Eurozone developments, but GBP could weaken against USD is 2013.
Looking to G10 FX Volatility,, Kim believes that we should see a further repression in G10 currency volatility, especially if the BoJ ratchets up monetary policy easing. With none of the G10 central banks expected to tighten policy any time soon, a more widespread “lower for longer” approach by G10 central banks should result in narrow ranges again in many crosses.
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