Kit Jax, chief global FX strategist at Societe Generale, said the yen would benefit and the euro would benefit if the economy were to slip into a mild but still traumatic recession, but the biggest winner would be the NZD. and AUD.
USD/JPY Still Tracks Yields, EUR/USD Has More Complicating Factors, But Should Move Up
“Before the euro hits new cycle highs, we may need clear evidence that the crisis is not contagious and will not change the course of ECB interest rates, but the USD/JPY has narrowed yield differentials. We keep tracking, and history tells us that: USD/JPY hit 160 in April 1990, fell to 120 as interest rates fell to 3%, and remained below 80 in 1995. “
“Continued currency volatility is warranted as markets fear contagion, and if it occurs, the dollar could rise very quickly. The dollar will fall further if we validate the signals of the 1990s and lead to a mild 1990s-style recession, the yen will benefit, the euro will also benefit, but G10FX’s biggest near-term winner is the NZD. and AUD.”