Daily Management Review

Central Banks and Brexit will Whipsaw Currencies, says Pimco


06/13/2016




Central Banks and Brexit will Whipsaw Currencies, says Pimco
The Pacific Investment Management Co claims that currencies and other assets are set to be whipsawed by a Federal Reserve meeting and a referendum on the future of one of the world’s largest economies.
 
 “We need to be respectful of the technical uncertainty associated with central-bank policies and increasingly volatile and uncertain politics,” said Daniel Ivascyn, group chief investment officer at Pimco.

“The aggressive strengthening theme over the last few years has come to an end -- any strengthening will be much more measured,” said Ivascyn while talking about the dollar. Ivascyn’s California abased company Newport Beach, has $1.5 trillion under its management.

Riding on speculations that the economy won’t be able to withstand higher borrowing costs, the greenback slumped to a one-month low and incurred looses last week which however managed to recoup some of its losses made this week.

The Federal Reserve of the US is just one of four central banks to meet next week and include the central banks of Japan, Bank of England and Swiss National Bank. The path of monetary policy set by the central banks following the meetings had driven the currency and its operations.

The dollar rose 1 percent last week against the euro to $1.1251. The pound fell 1.8 percent to $1.4257.
Noting the most climb the five days ended February 12, the JPMorgan Chase & Co. gauge of foreign-exchange price swings climbed 10 percent last week.

According to data from the Commodity Futures Trading Commission, the net bullish bets on the dollar for the third week were increased to 145,247 positions as of June 7 by Hedge funds and other money managers. This increase last week marked a rise from the 84,149 point that was reached the week earlier.

A policy statement, revised economic projections and a news conference would be conducted by the Federal Open Market Committee after the end of its two-day meeting on June 15. Futures data show that while there’s a 49 percent probability the central bank will hike by year-end, traders see a zero percent chance the Fed will raise rates meeting.

In line with polls before a June 23 referendum in which the U.K. decides whether to remain in the European Union, the pound has had a tumultuous week and has risen and fallen regularly. As anxiety about a potential British exit gripped investors, trader expectations for price swings climbed to a seven-year high.

“Geopolitics is front and center in how we think about the outlook and potential risks to the markets. We are in an environment where growth is fragile, uncertainty is elevated and there is a lot of focus on event risks that geopolitics can present,” Jean Boivin, the London-based head of economic and markets research at the BlackRock Investment Institute had said in a June 7 interview in Montreal.

(Adapted from Bloomberg) 






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