Latest news with #BarclaysFX
Bloomberg
31-03-2025
- Business
- Bloomberg
Barclays' Montgomery Koning on Tariffs, Yen, Global Growth
Barclays FX Strategist Skylar Montgomery Koning says with tariff uncertainty it's hard for the market to price in anything, and the real test will be the April 2nd deadline. She also discusses global growth in an interview with Katie Greifeld on "Bloomberg Brief." (Source: Bloomberg)
Reuters
26-03-2025
- Business
- Reuters
FX markets still suspect Trump is bluffing
LONDON, March 26 (Reuters) - It's been a lousy start to the year for Wall Street, but any notion that a global trade war is fully priced by investors seems fanciful. Just look at currency markets. If you've lost track of what the U.S. administration's trade plan is currently, then rest assured that you're not alone. President Donald Trump 's strategy ebbs and flows by the day amid periodic insistence that every country is going to pay, only to revert to seemingly random exclusions or added complexity via sectoral and national caveats. Slightly punch drunk, financial markets have reverted to behaving like a metronome: "risk on" with any suggestion that Trump is hesitating and "risk off" with every social media post calling for blanket U.S. trade retribution. As it stands, the latest nods and winks suggest the momentous April 2 announcement will be a messier than first billed - and the pressure on stocks and bond yields has lifted a bit to reflect that. Whether the administration's more equivocal stance is a result of the market's tantrum in recent weeks is an open question. But it's anyone's guess what measures will eventually show up and it's a pretty safe bet that whatever is announced will not be the end of it. So is the trade war risk fully priced in? How could it be? MODELLING THREATS Barclays FX strategist Themos Fiotakis and team have been brave enough to attempt to build a framework showing how currency markets might react in a full trade war scenario. And they reckon very little of the outsize risk is currently priced into foreign exchange rates, either from tariffs already announced or from those coming down the pike. The Barclays model works off the basic idea that tariffs will inflate the globally-cleared price of imports in the U.S. and that the dollar should nominally appreciate to offset the resulting real exchange rate effects. They judge the extent to which it has done so since Trump was elected for a second term last year by the size of moves since then that cannot be explained by economic considerations embedded in interest rate differentials. Needless to say, the matrix of what's already announced, what might be announced and what retaliatory measures are in place or expected gets pretty complicated. Numerous "ifs" and "buts" apply. Just one of many unknown wrinkles for the Canadian dollar and Mexican peso, for example, is the extent to which some imports will be exempt due to the USMCA agreements struck during Trump's first term. Barclays' conclusion is that of the four major currencies under the gun, the Canadian dollar is reflecting the most risk, with a 6% tariff premium already priced in. However, the strategists argue this is still less than half of the move that would be expected given the tariffs already in place, and even less based on those that might yet come. The euro's tariff-related loss since the election of some 4% is almost half of what might be expected given potential tariffs, insulating it to some degree. And if you take all of the worst-case scenarios, Barclays thinks the peso could be at risk for further depreciation of 38%, with a risk of a 21% decline for China's yuan from here, 19% for the Canadian dollar and 9% for the euro . Deutsche Bank emphasises differences in relative hits to the U.S. economy and rival markets of similar-sized tariffs, pointing out that a U.S. tariff on the euro zone would impact a greater share of the U.S. economy than that of Europe, whereas the opposite was true with the impact on Mexico. Complications aside, if you at least accept that currency markets are far from fully priced for what's coming, then it's unlikely stock or bond markets are much more prepared. To be sure, U.S. growth forecasts have been downgraded and full-year 2025 earnings growth forecasts for S&P 500 firms have been dragged lower. Year-end S&P 500 index (.SPX), opens new tab targets have been cut too - even though consensus forecasts remain 15% above current levels. But if currency markets are any guide, the full blast of what's to come has yet to be absorbed. While it's still possible the Trump trade threats are mostly bluster - that's a nervy stance to cling on to as next Tuesday's "Liberation Day" approaches. The opinions expressed here are those of the author, a columnist for Reuters By Mike Dolan; Editing by Jamie Freed Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
Zawya
14-03-2025
- Business
- Zawya
The big currency winners of 2025 so far do not include the dollar
LONDON - Donald Trump's second presidency is having a dramatic impact on currencies around the world, though not in the way investors anticipated just a few months ago. The dollar has weakened this year against all other developed market currencies, except Canada's, on concern that tariff uncertainty is harming the U.S. economy. "Tariffs, generally speaking, tend to be good for the dollar," said Barclays FX strategist Lefteris Farmakis. "But when they are applied against very close trading partners, they can harm confidence in the U.S." U.S. recession risks are growing and investors also see reasons to buy the likes of the euro, Swedish crown and Japanese yen in their own right. Here's a look at some of stand-out movers. 1/ EURO TRANSFORMED Germany's historic proposal to ramp up defence and infrastructure spending have catapulted the euro higher. It posted its biggest weekly gain versus the dollar since 2009 last week and is set for its best quarter since 2022, with a 5% rise. At around $1.09, the euro is at its highest since the November 5 U.S. election. BofA sees further gains to $1.15 by end-2025. The euro has also risen against sterling and the Swiss franc. The European Central Bank approaching the end of its easing cycle and Europe's increased defence spending has changed the outlook for the euro in a fundamental way, said Kenneth Broux, head of corporate research FX and rates at Societe Generale, noting U.S. tariffs remained a risk to euro gains. 2/ GO THE YEN Another big gainer has been the yen, some 6% stronger against the dollar so far this year thanks to higher Japanese rates and safe-haven flows during turbulent times. "If you want to hedge against the risk of slowdown in the U.S. you go to Japan because of the risks for lower U.S. Treasury yields," said Barclay's Farmakis. The yen is particularly sensitive to changes in the gap between U.S. and Japanese borrowing costs. Yen-positive developments at home meanwhile include companies meeting union demands for substantial wage increases. That could push the Bank of Japan to accelerate rate hikes, lifting the yen's appeal after four straight years of declines. Speculators have mounted their biggest ever wager that the Japanese yen will continue to rise. 3/ UNFRIENDLY NEIGHBOUR Pressure on currencies in Canada and Mexico, the two largest U.S. trading partners, has abated but is unlikely to disappear soon . ING says current trading levels suggest a 2% risk premium is priced into the Canadian dollar, half the peak risk premium seen in early Feb when it hit 22-year lows versus the greenback. Mexico's peso has appreciated 5% from three-year lows hit last month against the dollar. At around 20.10 per dollar, the peso has moved back towards pre-U.S. election levels. Trump's suspension of 25% tariffs imposed on most goods from Canada and Mexico are positive. But universal steel and aluminium tariffs took effect Wednesday, drawing retaliation from Canada - the biggest foreign supplier of steel and aluminium to the U.S. - and encouraging another Bank of Canada rate cut. No surprise that implied volatility in Canada's dollar remains elevated. 4/ NOT SO FRAGILE CHINA China's yuan was expected to suffer more than most currencies from Trump's policies. Some expected Beijing would allow its closely-managed currency to weaken to mitigate the impact of tariffs, as it did during Trump's first presidency, particularly in the trade war of 2018 and 2019. China has been hit by more tariffs than most, but the yuan, on and offshore, has strengthened this year to trade around 7.25 yuan per dollar. BofA said one reason Chinese authorities haven't encouraged a weaker exchange rate against the dollar is that other emerging Asian currencies have strengthened more than the yuan, supporting Chinese exporters. "China is still achieving a relative trade weighted depreciation of the yuan against its key trading partners, despite modest yuan appreciation against the dollar," it said. 5/ CROWNED IN GLORY One currency that has surged against the dollar, and perhaps gone under the radar, is Sweden's crown. It has strengthened 9% to near 10 crowns per dollar, the firmest since late 2023, and has even held its own against a resurgent euro. A strong performance for European shares, Ukraine-Russia ceasefire hopes and improved Swedish economic prospects explain the outperformance, analysts said. In addition to its sensitivity to European stocks, the crown is also benefiting from a surge in defence stocks. As a share of gross domestic product, Sweden is overrepresented among European defence stocks, notes Societe Generale. (Reporting by Alun John and Dhara Ranasinghe in London and Yadarisa Shabong in Bengaluru, editing by Christina Fincher)
Reuters
14-03-2025
- Business
- Reuters
The big currency winners of 2025 so far do not include the dollar
LONDON, March 14 (Reuters) - Donald Trump's second presidency is having a dramatic impact on currencies around the world, though not in the way investors anticipated just a few months ago. The dollar has weakened this year against all other developed market currencies, except Canada's, on concern that tariff uncertainty is harming the U.S. economy. "Tariffs, generally speaking, tend to be good for the dollar," said Barclays FX strategist Lefteris Farmakis. "But when they are applied against very close trading partners, they can harm confidence in the U.S." U.S. recession risks are growing and investors also see reasons to buy the likes of the euro, Swedish crown and Japanese yen in their own right. Here's a look at some of stand-out movers. 1/ EURO TRANSFORMED Germany's historic proposal to ramp up defence and infrastructure spending have catapulted the euro higher. It posted its biggest weekly gain versus the dollar since 2009 last week and is set for its best quarter since 2022, with a 5% rise. At around $1.09 , the euro is at its highest since the November 5 U.S. election. BofA sees further gains to $1.15 by end-2025. The euro has also risen against sterling and the Swiss franc. , The European Central Bank approaching the end of its easing cycle and Europe's increased defence spending has changed the outlook for the euro in a fundamental way, said Kenneth Broux, head of corporate research FX and rates at Societe Generale, noting U.S. tariffs remained a risk to euro gains. 2/ GO THE YEN Another big gainer has been the yen, some 6% stronger against the dollar so far this year thanks to higher Japanese rates and safe-haven flows during turbulent times. "If you want to hedge against the risk of slowdown in the U.S. you go to Japan because of the risks for lower U.S. Treasury yields," said Barclay's Farmakis. The yen is particularly sensitive to changes in the gap between U.S. and Japanese borrowing costs. Yen-positive developments at home meanwhile include companies meeting union demands for substantial wage increases. That could push the Bank of Japan to accelerate rate hikes, lifting the yen's appeal after four straight years of declines. Speculators have mounted their biggest ever wager that the Japanese yen will continue to rise. 3/ UNFRIENDLY NEIGHBOUR Pressure on currencies in Canada and Mexico, the two largest U.S. trading partners, has abated but is unlikely to disappear soon , . ING says current trading levels suggest a 2% risk premium is priced into the Canadian dollar, half the peak risk premium seen in early Feb when it hit 22-year lows versus the greenback. Mexico's peso has appreciated 5% from three-year lows hit last month against the dollar. At around 20.10 per dollar, the peso has moved back towards pre-U.S. election levels. Trump's suspension of 25% tariffs imposed on most goods from Canada and Mexico are positive. But universal steel and aluminium tariffs took effect Wednesday, drawing retaliation from Canada - the biggest foreign supplier of steel and aluminium to the U.S. - and encouraging another Bank of Canada rate cut. No surprise that implied volatility in Canada's dollar remains elevated . 4/ NOT SO FRAGILE CHINA China's yuan was expected to suffer more than most currencies from Trump's policies. Some expected Beijing would allow its closely-managed currency to weaken to mitigate the impact of tariffs, as it did during Trump's first presidency, particularly in the trade war of 2018 and 2019. China has been hit by more tariffs than most, but the yuan, on and offshore, has strengthened this year to trade around 7.25 yuan per dollar. , BofA said one reason Chinese authorities haven't encouraged a weaker exchange rate against the dollar is that other emerging Asian currencies have strengthened more than the yuan, supporting Chinese exporters. "China is still achieving a relative trade weighted depreciation of the yuan against its key trading partners, despite modest yuan appreciation against the dollar," it said. 5/ CROWNED IN GLORY One currency that has surged against the dollar, and perhaps gone under the radar, is Sweden's crown. It has strengthened 9% to near 10 crowns per dollar, the firmest since late 2023, and has even held its own against a resurgent euro. , A strong performance for European shares, Ukraine-Russia ceasefire hopes and improved Swedish economic prospects explain the outperformance, analysts said. In addition to its sensitivity to European stocks, the crown is also benefiting from a surge in defence stocks. As a share of gross domestic product, Sweden is overrepresented among European defence stocks, notes Societe Generale.
