Currency News: Reality of Trump Presidency Will Likely Boost the Yen & Zimbabwe Introduces Dollar-Backed Bond Notes

Currency News

Yen Set to Appreciate Once The Market Begins to Retreat When Its Overvaluation Ends

As the market continues to overvalue the equity and create a bubble as it soaks everything Trump says in a position manner, UBS has recently explained how after the market calms down a bubble will burst whereas driving the yen up. They even see the yen/dollar exchange settling at 90 per dollar in a 12 month period. The wealth management team had gone on to explain that the expansionary fiscal policy is likely overblown, as he will face a republican congress which has historically favored a more contractionary policy and spending cuts. Though he has announced that he would undertake fiscal spending to create a reflationary stimulus, many of what Trump speaks are often retracted, i.e. he now claims to not wanting to build an actual wall to seperate the U.S. and mexico; rather more of a fence to fill in gaps.

Currency News

“The market has latched on to only the juicy bits of Trump’s policies, and wrapped them up with unreasonable euphoria, which we think is pretty much a misinterpretation,” the UBS strategist Ibayashi said in a phone interview Monday. “A market that’s been overbought on hope will quickly fall apart.”

Additionally, what investors should expect is more an isolationist trade policy, whereas Trump would not be very pro globalization; which can hurt the net relative advantage and trade given by America. While the appreciation of the yen may help importers in Japan and outside firms that do business there, a huge push by the Bank of Japan has been to lower the yen to increase consumption spending and thus inflation. Additionally, the yen has actually appreciated throughout 2016; and although a crash of the dollar is obviously something Trump’s administration would want to avoid, they as well would not like a continual spike in the dollar against its peers. The reason is because that many U.S. business, specifically multinational ones, are hurt when the dollar rises as their costs domestically increase while, revenues abroad decrease. This is also known as the foreign exchange risk sensitivity, and can be calculated for firms that have revenues and expenses in two currencies as 1 divided by the profit margin (as a percent).

Zimbabwe Government Introduces Dollar-Backed Bond Notes To Increase Market Liquidity

Across the world in Africa, Zimbabwe an emerging market economy, has announced its introduction of dollar-backed bond notes to help ease a shortage of physical currency. For a while, Zimbabwe has been experiencing such a large magnitude of currency deprecation that not only do people end of carrying bank notes with denomination reaching trillions of dollars; but many have begun only using dollars in goods and services transactions. In 2009, the country had decided to end its own currency and opt to use a range of outside pegged currencies such as the rands, euros, pounds, and dollar.

“The bond notes will be released into the market through normal banking channels in small denominations of $2 and $5 to fund export incentives of 5 percent which will be paid out to exporters of goods and services and diaspora remittances,” the Reserve Bank of Zimbabwe said in an e-mailed statement on Saturday. The introduction of the bond notes will allow average citizens to increase consumption as well as net trade to boost GDP.

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