FX markets warm to ECB proper QE

FX markets warm to ECB proper QE



22 жовтня 2014 года
ICU

While the hryvnia has fallen from 8 to 13 per US dollar over the past year, its trade-weighted value is a far more relevant measure. While the nominal TWI has dropped as a result of the devaluation, high inflation over the past six months has caused the competitiveness gain to erode. The US dollar's appreciation, although slowed over the past week because of decelerating global growth, has caused the hryvnia's TWI to increase as well. Over the past month, the USD has gained 0.9% (7.5% YTD) to the euro and the Russian ruble has lost 6.5% (24.5% YTD). Yesterday, following the ECB's announcement that it would purchase corporate bonds as a QE stimulus, the US dollar gained 0.7% more versus the euro. Meanwhile, the US dollar lost 0.1% versus the ruble as the price of crude oil regained some ground yesterday. In the end, the hryvnia's real TWI declined 0.63%. If the previously mentioned two factors persist as expected, then a stable FX rate of 12.95/USD should cause real appreciation of the currency in trade weighted terms. This is a damaging development in macroeconomic terms. A "stable" FX policy is temporary and likely to be phased out sooner than later. Ukrainian authorities most likely are awaiting the most opportunistic moment to make this move less damaging, preferably when some business confidence has been restored.

Источник: ICU

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