Institutional Insights: Barcalys FX Thoughts For The Week Ahead

Thoughts for the Week Ahead - Rate risk - This week’s FOMC meeting will likely shift market concern from trade protectionism to the prospect of higher US interest rates and the challenge they may pose to risk assets – questioning the story of synchronised global growth supported by low inflation and gradual policy normalisation. Higher US rates will be particularly concerning for risk-sensitive G10 and EM local market assets if they are accompanied by equity market weakness. Among these, we think the NZD is the most vulnerable G10 currency, given that its high sensitivity to these variables will likely be exacerbated by a lack of real rate advantage, FX overvaluation, and a highly responsive government bond market...
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