• The Turkish lira was one of the more volatile currencies in 2017.
• High inflation, a central bank apparently hobbled by political resistance to higher rates and persistent political jitters were key factors which made the currency vulnerable.
• In this post we take a closer look at the balance of payments to ascertain whether risks have increased over the last year.
On 6th April, the Czech National Bank (CNB) announced an end to their currency floor
The market reaction was muted by comparison to that in the response to the collapse of the EURCHF floor in 2015
We analyse the differences in economic fundamentals and central bank policy which allowed this much smoother exit from a currency floor.
• Does the recent weakness and volatility in the CNH spot and short-tenor forward market herald a new era of Chinese capital outflows?
• In this blog post we offer our thoughts on three strategically important questions regarding China’s macroeconomic and FX policy, for which there appears to be little consensus.
• A disaggregation of the decline in foreign exchange reserves and the balance of payments reveal some less sinister causes of reserve drawdowns and capital outflows
• Looking at the bigger picture, we believe China is stuck in an uncomfortable position within the “impossible trinity” and see further exchange rate and capital account liberalisation key factors in finding a new equilibrium.
•The economic rationale for entering, and ultimately exiting a regime of exchange rate interventions is markedly different for the Czech National Bank relative to the Swiss National Bank.
•The central bank balance sheet, politics and nature of the underlying economy (and currency) are, amongst other things, important factors in helping determine the likelihood of a central bank continuing to intervene in the FX market.
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