News over the last month were on balance growth friendly and lifted risky assets but inflation concerns also raised bond yields. The response in currency markets was mixed. Emerging markets currencies fell on balance more than 2% since the middle of Febru-ary. We think a “tantrum” experience as in May 2013 is unlikely in the near-term. However, some emerg-ing market economies are vulnerable due to exter-nal and fiscal imbalances and low interest rates.
Economy and Interest Rates
So far, first-quarter growth is holding up well de-spite the spike in Corona infections around the turn of the year. The deployment of Corona vaccines varies from country to country but is in general gathering speed, which together with more fiscal stimulus improves the economic outlook.
Currency movements have been mixed over the last month. The USD was on balance unchanged versus major currencies but with significant dispersions. GBP, AUD and CAD were stronger, CHF and JPY were weaker and the EUR roughly flat. EM curren-cies rallied in the first half of February, but lost all gains and more subsequently.
Going into more detail: Based on our proprietary analytical framework to take scalable exchange rate positions we are taking a close look on individual currency pairs.
The USD declined further in May as vaccination and recovery momentum increased in other economies...» more