Credit Suisse Says Currency Markets Hit Pause as Divergence Ebbs

  • ECB and BOJ in no rush to add stimulus while Fed on hold
  • Yen and euro snap monthly losing streaks against greenback

The biggest driver of currency markets in the past two years will probably stay on hold this quarter, according to Credit Suisse Group AG.

The prospect of monetary-policy divergence, or rising U.S. interest rates in contrast to monetary stimulus in Europe and Japan, is receding this year as concern about slowing global growth threatens to keep the Federal Reserve from boosting borrowing costs any time soon. With the European Central Bank and Bank of Japan in no rush to add stimulus, the euro and yen have halted their slides against the dollar.

“Global risk appetite seems to be driving the bus -- and as long as that is the case, I don’t think that we’re likely to see that much policy divergence,” said Alvise Marino, a foreign-exchange strategist at Credit Suisse in New York. "The type of very clean policy-divergence trade that we’ve seen last year is just not going to be that popular.”

The yen is up 3.2 percent since the start of the year after snapping a two-month losing streak against the dollar in December. It climbed 1.4 percent earlier Wednesday to a one-year high at 115.98 per dollar.

The decline in risk appetite across markets prompted Credit Suisse to be less bearish in its 12-month yen forecast, moving to 125 per dollar from 130. The yen tends to benefit when investors seek safe assets.

The euro gained 0.4 percent in 2016 after ending a three-month slide last month.

Credit Suisse was among the best forecasters of the Australian and New Zealand dollars last quarter. Those currencies, alongside those of other commodity-exporting nations, have extended declines this year on a worsening outlook for Chinese growth.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE