Westpac have popped up a piece summarising three key themes that have emerged from the European Central Bank’s annual conference in Sintra that concluded on Wedneday:
- Asia and the West have different responses to the trade shock
- The decline of US dollar dominance will be slow
- Reliance on the neutral rate offers diminishing returns
On that second point,the note from WPAC says, in brief:
Shift from the US dollar as a reserve currency will be gradual, driven by global uncertainty and lack of a clear alternative.
ECB President Lagarde said the euro could play a larger reserve role, but this requires:
Stronger geopolitical and legal foundations in Europe
Deeper capital markets supported by a robust European economy
A long-term process with no quick fixes
Bank of Korea Governor Rhee reinforced the gradual theme, citing:
Recent Korean won strength reflects domestic political stability, not just USD weakness
Increased hedging ratios by domestic fund managers have supported currencies like the won, Taiwanese dollar, and Japanese yen
This article was written by Eamonn Sheridan at www.forexlive.com.
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