monetary policy remains accommodative until necessary,
even cutting the benchmark interest rate by 25 basis points
during the period. Given the constructive outlook on the
USD, the relative weakness of the Eurozone and the low
interest rate environment, compared to talks of higher rates
in the US, the outlook is for the Euro to depreciate but to
benefit from the pockets of volatility in the DXY.
Given the optimistic outlook on
the US economy and dampening
outlook for oil prices, the CAD
could depreciate versus the USD.
The British Pound (GBP) appreciated 4.93% as UK economic
data surprised on the upside. The recovery momentum plus
the uncertainty with the US shutdown in October, helped
provide support for the Pound. The Bank of England is
expected to hold its benchmark rate constant at 0.5% until
the unemployment rate drops from current 7.7% to 7%.
Whilst this may be far off, the continued improvement in UK
data plus upcoming uncertainty in the US in Q1 2014 could
provide some strength to the GBP.
Latin America
Speculation over a tapering of the US Federal Reserve’s
current quantitative easing (QE3) program caused a selloff in emerging-market currencies, with the Brazilian Real
(BRL) hit particularly hard. The currency weakened to a
low of BRL2.45/ USD. Investors have become increasingly
concerned that Brazil is not doing enough to stave off rating
downgrades. The Banco Central do Brasil (BCB, the Central
Bank) subsequently announced the use of currency swaps
until the end of 2013, which should help the authorities keep
the BRL mostly within a range of BRL2.35- BRL2.45/ USD.
Despite periods of depreciation, overall the Colombian peso
(COP) appreciated slightly in the period July to October
2013. The Central Bank expressed its comfort with the
COP1900- COP1950/ USD range and highlighted that it
will purchase US dollars in the market to stem any strong
appreciation pressures.
The Mexican peso (MXN) depreciated as investors reacted
to expectations of a change in US monetary policy. Policy
changes in Mexico that will help open the energy sector to
private institutions could provide a boost to the peso but
the overall movement will be determined by the US Federal
Reserve’s tapering schedule. Any expectation of a taper will
result in a depreciation of the peso.
The Canadian dollar (CAD) or “Loonie” appreciated 1.01% on
the increase in crude oil prices and the weakness of the US
dollar. Given the optimistic outlook on the US economy and
dampening outlook for oil prices, the CAD could depreciate
versus the USD.
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