Currencies: Loving lowflation - ING

The failure of price pressures to emerge, even in mid-to-late cycle economies, is being welcomed by investors, according to the analysts at ING.

Key Quotes

“Risk-free benchmark rates remain near ultralow levels and may not be seriously challenged until later in the year. For FX markets, a mostly neutral dollar outlook means investors can chase growth or re-rating stories.”

“Our EUR/$ forecasts of 1.15 and 1.20 for end 2017 and 2018 respectively are largely a EUR re-rating story. A broadening Eurozone recovery will question why the EUR remains so cheap – especially now that 2017 Eurozone political risk has been overcome. Tentative ECB tapering should provide the catalyst for the EUR in 3Q17.”

“In general we remain positive on most European currencies against the dollar. Our toppicks remain in the CE3, where it seems policymakers are now finally prepared  to tolerate stronger currencies. And while GBP is very cheap, the huge uncertainty about what the new government can achieve may delay the GBP re-rating story.”

“Elsewhere in EM, we expect investor appetite to rotate away from Russia and towards Turkey, where the CBT looks to keep rates very firm over coming months. Declining volatility has triggered a sharp improvement in TRY’s carry-to-risk ratio.”

“Political problems in Brazil have damaged BRL’s position as the darling of the Latin world. However we would be wary of chasing MXN gains, given election risk in 2018.”