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The Mexican and Chilean ruble and the peso will fall another 30% if the Fed does not apply more

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Six of the world's major central banks have coordinated their efforts to the markets don't run out of dollars. The ‘greenback’ continues to play a formidable active haven of refuge in the coronavirus health crisis and the flight of funds from Wall Street and other assets into the liquidity in US currency guarantees that there is "strength of the dollar for a while," warn the experts at Rabobank. A prolonged suffering of the US stock market and uncertainty about the advance of Covid-19 and its impact on the economy underpin the US currency and leave irreparable damage to emerging market currencies, which are the worst that are happening in this context.

In this sense, the US is the dominant unit of change in the global payment system and, given the indications that the economic consequences of the coronavirus are worsening, “the US Federal Reserve (Fed) may have to resort to new emergency measures to fully convince global companies that the supply of dollars will continue to be large, "indicate the experts of the Dutch entity. "These measures are necessary to prevent a potential crisis in the economy from being transmitted to the global financial system," they add and ensure that "given current tensions, we continue to see scope for the dollar to strengthen against a broad group of currencies"

"In the past five days, the 'greenback' has outperformed almost all global currencies. There is no alternative for global transactions and we hope that as long as the tensions in the money market persist, it will remain firm. ” The currencies that have been most vulnerable to this currency in recent days include the ruble, the Mexican peso or the Polish złoty, which have fallen by around 7%.

A Bloomberg study estimates that the currencies of countries like Turkey, Russia, Chile or Mexico have the potential to depreciate between 40% and 15% whether the viral outbreak causes losses in US stocks comparable to those of the 2008 crisis. The analysis shows that the currencies of countries with current account deficits and relatively illiquid financial markets are the most vulnerable to the strength of the dollar. These include a number of nations in Latin America, along with South Africa, Indonesia, and India.

By contrast, the currencies of countries with large surpluses are projected to outperform, namely Thailand and Taiwan. An atypical case is the ruble. While Russia has a current account surplus, its currency will face large losses due to the fact that a drop in the global economy generally leads to a drop in oil prices, as seen.

MORE FEAR OF THE ROLL OF THE RUBLE THAN THE CORONAVIRUS

In fact, 60% of the citizens of Russia have more fear of the fall of the ruble and the consequent increase in prices than of catching the new coronavirus, which has left more than 6,500 fatalities and nearly 170,000 infected people worldwide, according to a study by the Russian bank Otkritie.

Compared to 60% of respondents who are more afraid of the ruble's collapse, only 29% of those surveyed are more afraid of catching the new coronavirus originating in the Chinese city of Wuhan, according to the Russian news agency Sputnik.

The survey shows that 57% of Russians believe that the 2014 economic crisis may recur, and 27% do not rule out that the new crisis may be even worse. Only 17 percent of respondents expect an improvement in the country's economic situation in the near future.

Thus the things, the analysts of Rabobank indicate that the dollar will remain strong depending on the development of the crisis. The action already announced by central banks will help limit the escalation of any pressure on the financial system. However, “until there are indications that the number of coronavirus cases in Europe and the US has peaked, fears about the prospects for the real economy will continue to worsen and central banks will have to remain on high alert to protect the system. financial ”, he argues. And they emphasize that as long as the new affected continue to grow, the appetite for the dollar will continue.

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