Stay Tactically Bearish On Dollar And Yen In Q1 2013 - Morgan Stanley

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Investors should stay tactically bearish on the USD and the JPY throughout the first quarter of 2013 as both currencies are poised to decline on the policies of their central banks, says Morgan Stanely.

For the Federal Reserve, MS notices that as it has already revolutionized central banking again by introducing numerical targets to its policy approach, adopting a so called “Evan’s Rule”, the power at the US central bank has shifted clearly in the direction of the doves.

As such, easy policy, low rates, and large scale asset purchases are likely to stay for the foreseeable future providing an environment of dollar weakness through Q1 of next year, MS adds.

For the Bank of Japan, MS believes that the changing environment in the Japanese political landscape under the new Abe government will soon lead to bolder BoJ measures to fight against deflation and currency strength.

That, according to MS, will provide the trigger point for adjustments in currency hedging strategies by Japanese fund managers, generating the momentum for sustained USD/JPY recovery in 2013.

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