In the second edition of the 2022 FX Quarterly our strategists examine Fed policy, more COVID variants, and Russia’s invasion of Ukraine. We also explore what the unprecedented removal of global liquidity means for emerging markets. Here is synopsis of what is included in this quarter’s outlook:
When New Risks Are The Same As Old Risks: Major Markets Overview
As 2021 drew to close, global investors were polled on the biggest risks they faced in 2022. Unsurprisingly, the top three were: 1) a Fed policy mistake, 2) a Russian invasion of Ukraine, and 3) more COVID variants. Q1 2022 quickly manifested the last two as established risks. As Q2 gets under way, the risks of a Fed policy mistake will likely move to the forefront. Elsewhere, COVID variants continue to disrupt economic activity across the globe, particularly in China. With the world’s second biggest economy in hard lockdowns, that will have a significant impact on global growth in Q2. Find this and more in our Major Markets Overview by downloading here.
Lots of Tightening In The Pipeline: Emerging Markets Overview
Emerging markets (EMs) typically benefit from cheap and easy global liquidity. Given such an unprecedented removal of global liquidity that’s expected over the next 12-24 months, we can only surmise that EM will struggle to gain traction. Global liquidity is tightening at an unprecedented pace and the weaker credits will likely struggle to finance twin deficits. Weak links in EMs will be tested, while frontier markets like Sri Lanka and Pakistan are already in crisis. Learn more in our Emerging Markets Overview by downloading here.
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