Currencies to be more volatile in 2020
The US Dollar and the Swiss Franc appear to be the most overvalued currencies in the developed world, while the Japanese Yen, the Nordics and the Australian Dollar look the best value. We contend that the strength of the US dollar in the past 2 years has mainly been associated with the rise in uncertainty around the world, which has eroded growth expectations and therefore increased the demand for safe havens. There is a strong co-movement between the annual change in the Economic Policy Uncertainty (EPU) index and the annual change in the US Dollar (broad exchange rate NEER). If the business sentiment starts to improve in the first half of 2020, in the light of the decisive UK election and the easing of trade tensions between US and China, we anticipate that the US Dollar index will weaken.
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