Rise and fall: winners and losers

Rise and fall
Rise and fall

With talk of a Grexit subsiding, markets are re-focusing on the underlying European economy, and this paints an increasingly upbeat picture...

The Eurozone has climbed out of deflationary territory, growth is on an upward trajectory, unemployment is falling across the bloc – although it remains at worrying levels across southern Europe – and the ECB will soon move to wrap up the quantitative easing which has brought some structural weakness to the currency.

Meanwhile the US dollar will continue to benefit from the world’s largest economy performing strongly. Nick England, CEO of VFX Financial, says: “The FX markets are notably capricious; however, looking ahead we can expect the US dollar to continue its ascendancy. Dollar strength normally has a negative correlation to commodities which could cause a major deflationary bout.

“While this will be felt globally, it will be especially harsh on emerging market currencies and countries that rely heavily on exports of oil and natural resources. In the Asian Pacific theatre, China looks perilously close to experiencing a bursting of its massive debt fuelled bubble. To try and fight this, the PBOC could embark on a massive monetary stimulus, which in turn could start a regional currency war.”

Closer to home, with the UK’s referendum on its membership of the European Union looming, expect to see a negative impact on both sterling and the euro. “We predict that the strongest currencies will be USD, CHF and JPY as we see a flight to perceived safety,” says England. “Losers to be GBP, EUR, AUD, DKK, NOK, NZD , ZAR, RUR, RMB, SGD, THB, INR and the majority of African, Asian and South American currencies.”

In the next instalment of our Rise and Fall series, we examine a potential Grexit…