The US-China trade deal is still very much up for interpretation. As details gradually replace bellicose tweets, markets will be looking for actual concessions from the world’s second largest economy in favor of the US, and for solid mechanisms to ensure a more free-floating exchange rate between the greenback and the renminbi. The USD index touched a year-end high vs. a basket of currencies, while the CNY increased in value, albeit slightly, to close the year at 6.8785.
Weakening economic fundamentals in China seem to be forcing the hand of President Xi as his negotiators and their American counterparts hash out a new trade deal.1 Given steady wage increases in China (up 64% since 2011), and a confluence of economic warning signs, many businesses are looking farther afield as they grow.2
US corporates will start off 2019 largely bullish, as 2018 saw that US GDP and payroll growth largely signaled full steam ahead. However, a full slate of major geo-political opportunities contain both head- and tailwinds. FX volatility spiked more than 10% in December.
Stocks indexes around the world mocked commentators who were hoping for a “Santa Claus Rally”, where market optimism pushes stocks up a few notches just before year end. Investors pulled more than $84 billion out of US mutual funds and ETFs in November and December, the largest capital exodus since records began tracking these withdrawals in 1992.3
Brexit continued to garner headlines, but made no progress since UK Prime Minister May pulled a vote at the last minute on her latest version of a divorce agreement to avert an embarrassing loss in Parliament. Her new year message seemed to appeal to the greater British “let’s all pull together” spirit, but given that her most recent round of phone calls to EU members yielded no new concessions from the continent, the March 29 “Hard Brexit” deadline will continue to spur volatile trading sessions.4 To make matters worse, a recent survey found that a full 1/3 of European-based firms plan to cut spending in the UK due to Brexit uncertainty. The UK appears to be shooting itself in the face.5 The GBP continued to weaken into the new year, breaking below 1.26 at present writing.
Brazil swore in its new right-wing president Bolsonaro early in January. While promising “change” to get elected is often seen as passé, the former military commander wasted no time in delivering by withdrawing a pledge to host the next UN summit on climate change, signaling his intent to make gun ownership easier, and opening up what remains of Brazil’s rainforests to gold exploration, for starters. While the first 100 days slip by, voters and markets will try to suss out whether he can deliver or not. BRL largely stayed stable in December in the high 3.80s. Businesses and NGOs are wary of what damage could be done to Latin America’s largest economy.6
Protecting and growing your businessA focus on foreign exchange usually requires proactive efforts to safeguard cross-border business. We can help you add to your success by helping you reduce your currency risks.
SVB’s FX team has been ranked by Bloomberg as one of the most accurate FX forecaster in the world.* We leverage unique expertise to provide you with the ideas to help protect your business in turbulent times.
Learn more:Learn How Currency Movements Can Affect Your Global Business.
Read how the renminbi may move as market uncertainty rises on a global scale.
Explore all the tailored services SVB offers for your foreign exchange needs.
Subscribe to our Daily FX Updates to have currency news delivered to your inbox.
1 The Financial Times
3 The Wall Street Journal
6 The New York Times
* Source: Bloomberg 2018
*Bloomberg Q3’ 2018 FX forecasters are ranked based on three criteria: margin of error, timing (for identical forecasts, earlier ones received more credit) and directional accuracy (movements with the currency’s overall direction). The rankings which were based on Bloomberg’s foreign exchange forecasts (FXFC), were for forecasters who provided forecasts for Q3’ 2018 in at least three of the four preceding quarters but no later than one month prior to September 30, 2018.
Scores were calculated each quarter for the three criteria, which were weighted 60 percent, 30 percent and 10 percent, respectively. The final score for each currency pair was the time-weighted average of the four quarterly scores.
The best overall forecasters were identified by averaging the individual scores for each firm on all 13 currency pairs and all four quarters. Forecasters had to be ranked in at least eight of the 13 pairs to qualify for the overall ranking (54 firms qualified). All ranking tables display the top 20 percent of the forecasters who were eligible, to a maximum of 10 names.
This article is intended for US audiences only.
© 2021 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of the Federal Reserve System. Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq: SIVB). SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group, used under license.
This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.
Foreign exchange transactions can be highly risky, and losses may occur in short periods of time if there is an adverse movement of exchange rates. Exchange rates can be highly volatile and are impacted by numerous economic, political and social factors, as well as supply and demand and governmental intervention, control and adjustments. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Before entering any foreign exchange transaction, you should obtain advice from your own tax, financial, legal and other advisors, and only make investment decisions on the basis of your own objectives, experience and resources.
Opinions expressed are our opinions as of the date of this content only. The material is based upon information which we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. The views expressed are solely those of the author and do not necessarily reflect the views of SVB Financial Group, Silicon Valley Bank, or any of its affiliates.