“Despite the capital outflow from EM since the spring, not all high risk assets have been under pressure,” Jane Foley, Rabobank Senior FX Strategist, points out and adds: “Specifically US stock markets have appreciated significantly on the back of a strong growth story. The result has been that the JPY and the CHF have not reacted strongly to the sell-off in EM.”
Key quotes
“ We frequently argue that on paper the USD is not a true safe haven since the US maintains both a budget and a current account deficit. That said, the USD can boast huge liquidity and there is no real fear of a US debt default, so for many investors the greenback can perform the function of a safe haven well. Relative to the CHF or the JPY, the attraction of USD assets this year has been enhanced both by the very positive US growth story and by interest rate differentials which have continued to move in its favour. In essence the Fed’s tightening bias has done some of the heavy lifting for both the BoJ and the SNB.”
“We expect that over the long term the JPY and the CHF will remain investors’ safe havens of choice. In the short term we would also expect that any negative shock to the market is also likely to result in a sudden JPY and CHF outperformance. This could take the form of a geopolitical event or a sudden increase in perceived contagion risk from the EM sell off. That said, in line with our bullish USD view, we see scope for USD/JPY and USD/CHF to end the year a little firmer. We expect USD/JPY to drift back above 112.00. We expect USD/CHF to edge up towards 0.99.”
Share
