Pre-reading Risk Currency Mock Session


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Adrien Verdelhan will be discussing currency risk. AdMITs attending this session should read the focus on ‘Carry and the Yen move – Fade or Follow?’ from the attached Goldman Sachs report (p 6 to 11 of the pdf, marked ii to vii).

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Pre-reading Risk Currency Mock Session

  1. 1. The Global FX Monthly AnalystMarch 2012 SEK C$ RUB NOK £ PLN US$ € CHF CNY ¥ MXN INR HK$ BRL ZAR A$ ARS NZ$„„ The beginning of the year has seen a strong performance in FX carry strategies.„„ We look at the drivers and conclude that this mainly reflects an improvement in risk sentiment.„„ The recent strong rally in $/JPY surprised, given most fundamentals remain Yen-supportive...„„ ...although the recent BoJ shift may be important if the Yen remains weak in the new fiscal year.
  2. 2. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystContentsOverview Asia Recommended FX Trade Ideas i Australian Dollar 26 Feature ii Chinese Yuan 27 Hong Kong Dollar 28G3 Indian Rupee 29 US Dollar 1 Indonesian Rupiah 30 Euro 3 Korean Won 31 Japanese Yen 5 Malaysian Ringgit 32 New Zealand Dollar 33Europe, Middle East & Africa Philippine Peso 34 British Pound 7 Singapore Dollar 35 Czech Koruna 8 Taiwan Dollar 36 Hungarian Forint 9 Thai Baht 37 Israeli Shekel 10 Norwegian Kroner 11 FX Analytics Polish Zloty 12 Interest Rate Forecasts 38 Russian Ruble 13 GS Sentiment Index 39 South African Rand 14 FX Currents 41 Swedish Krona 15 GS Trade Weighted Indices 43 Swiss Franc 16 GS Anecdotal Flows 45 Turkish Lira 17 GSDEER 47 Key Economic Data 49Americas Policy Rate Forecasts 54 Argentine Peso 18 Exchange Rate Forecasts 55 Brazilian Real 19 Canadian Dollar 20 Chilean Peso 21 Colombian Peso 22 Mexican Peso 23 Peruvian New Sol 24 Venezuela Bolivar 25The source for all tables/charts is Goldman Sachs Global ECS Research unless otherwise stated. March 2012
  3. 3. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystRecommended FX Trade IdeasOur Recommended Top Trades for 2012 Trade Opened At Now At Potential Gain1. Close protection on the iTraxx Europe Xover Index 30-Nov-11 759 n/a -3.4 %2. Close short 10-yr German Bunds 30-Nov-11 2.28 n/a -3.5 %3. Long EUR/CHF 30-Nov-11 1.23 1.21 -1.97 %4. Long S&P TSX vs Nikkei, FX unhedged 30-Nov-11 100 94.7 -5.30 %5. Long CNY, MYR vs GBP, USD 30-Nov-11 100 102.54 2.54 %6. Close long July 2012 ICE Brent Crude Oil Futures 30-Nov-11 107.80 n/a 11.6 %Tactical FX Trade Performance 2012 Number Cum Return Avg Return Avg DurationAll Trades 5 5.1% 1.01% 18 daysProfitable 5 5.1% 1.01% 18 daysLoss-Making 0 0.0%Recent Tactical FX Recommendations Description Open Close Open Quote Close Quote Potential Day Time Day Time ReturnShort USD CNY (expiry 10Jun11) 01-Jan-11 "00:00" 10-Jun-11 "02:15" 6.5326 6.4853 0.73%Short AUD CAD 11-Jan-11 "23:43" 08-Feb-11 "17:00" 0.9703 1.0076 -3.70%Long EUR USD 13-Jan-11 "13:51" 28-Jan-11 "15:37" 1.3267 1.3636 2.78%Short USD PHP (expiry 09May11) 07-Feb-11 "11:07" 07-Apr-11 "05:57" 43.5900 43.0900 1.16%Long EUR TRY 09-Feb-11 "09:06" 12-Sep-11 "17:00" 2.1620 2.4349 9.04%Short EUR&USD RUB 01-Mar-11 "12:50" 19-Apr-11 "17:09" 33.6800 33.8472 -0.49%Long EUR USD 18-Mar-11 "10:06" 23-Sep-11 "17:00" 1.4085 1.3517 -4.03%Short USD MYR (expiry 29Mar12) 31-Mar-11 "01:58" 04-Aug-11 "21:36" 3.0660 3.0270 1.29%Short USD PHP (expiry 04Apr12) 07-Apr-11 "05:57" 04-Aug-11 "21:36" 43.1300 42.7300 0.94%Short MXN CLP 06-Jun-11 "12:22" 10-Aug-11 "17:09" 39.9703 38.2700 4.44%Long AUD JPY 29-Jun-11 "09:03" 18-Jul-11 "17:00" 85.7802 83.5749 -2.57%Long Basket (NZD, RUUSD 10-Aug-11 "14:20" 14-Sep-11 "17:00" 100.0000 97.7400 -2.26%Short USD, EUR SGD, MYR 18-Oct-11 "00:11" 01-Jan-12 "00:00" 100.0000 99.0000 1.01%Short AUD JPY 31-Oct-11 "16:02" 02-Nov-11 "16:34" 82.7092 80.7573 2.42%Long RUB HUF 09-Nov-11 "11:16" 06-Dec-11 "17:00" 7.4200 7.1550 -3.57%Short USD, EUR SGD, MYR 01-Jan-12 "00:00" 18-Jan-12 "12:36" 99.0000 97.1702 1.88%Short USD MXN 25-Jan-12 "20:17" 15-Feb-12 "13:35" 13.0300 12.7387 2.29%Short USD CAD 25-Jan-12 "20:17" 10-Feb-12 "17:00" 1.0056 1.0016 0.40%Long EUR USD 25-Jan-12 "19:43" 15-Feb-12 "13:35" 1.3059 1.3086 0.21%Short GBP NOK 22-Feb-12 "18:15" 08-Mar-12 "16:30" 8.8685 8.8424 0.30%Please see our Global Markets Daily Comment and Trade Updates for changes in these live trading strategies, as theychange in line with market developments and our views. i March 2012
  4. 4. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystFeatureCarry and the Yen move – Fade or Follow?Since the beginning of the year, FX carry strategies have had a very good run. More recently, Thomas Stolpereven the Yen—historically one of the prime funding currencies for FX carry strategies—has +44 (0)20 7774 5183started to depreciate notably. These developments raise the question of whether carry is backand whether the recent moves could be the beginning of a new multi-year uptrend. We look at Robin Brooksthe evidence and find little indication of a change in the underlying fundamentals so far. robin.brooks@gs.comInstead, continued gains in carry strategies are still likely to depend mainly on broader risk +1 (212) 902 8763sentiment. More specifically on the Yen, we continue to believe that most of underlyingappreciation forces remain in place and we are particularly suspicious of sudden Yen moves Themistoklis M. Fiotakis themistoklis.fiotakis@gs.comaround fiscal year-end. However, before shifting too quickly into the ‘fade’ camp, we have to +44 (0)20 7552 2901acknowledge the potentially important recent policy shift by the BoJ. The price action aroundthe next BoJ meeting and the beginning of the new fiscal year will be particularly interesting. Fiona LakeLastly, we take a more detailed look at the NOK, which in many respects seems to be following fiona.lake@gs.coma pattern that is more customary in Asia. We see the potential for significantly more NOK +852 2978-6088strength in the near future, which is reflected in our new forecasts. Constantin Burgi constantin.burgi@gs.com1. How FX Carry Works in Theory +44 (0)20 7051 4009FX carry strategies are based on the so-called forward rate bias, which is a violation of George Coleuncovered interest rate parity (UIP). On average, significant returns could be earned over george.cole@gs.comlong periods of time in the past simply by investing in high-yielding currencies, funded out +44 (0)207552 3779of low-yielding ones. In a more technical sense, the high-yielding currencies did notdepreciate as much as UIP would have suggested.Many FX carry strategies are A Rebound in FX Carry after a Difficult 2011implemented in more or lesssophisticated baskets, such as our own 1.14investable FX Carry Index, which hasrecently been revamped to reduce 1.12transaction costs (BBG ticker 1.10GSIMCAR1). 1.08Since the beginning of the year, these 1.06simple FX carry strategies have been 1.04performing well, recovering fully thelosses accumulated in 2011, as can be 1.02seen in the chart. For example, our GS 1.00Carry Index has posted a total return ofabout 3.5%, with a high Sharpe ratio 0.98and virtually no pullback. This has been 0.96the best performance window since 07 08 09 10 11 12 Source: GS Global ECS Researchearly 2009, when FX carry strategiesrebounded from the 2008 slump. Summary and Key Points The beginning of the year has seen strong performance in FX carry strategies. We look at the drivers and conclude that this mainly reflects an improvement in risk sentiment, rather than a fundamental shift back towards a more carry-supportive environment. The recent strong rally in $/JPY surprised given that most fundamentals remain firmly Yen-supportive. Also, the Yen tends to display sudden trend reversals around fiscal year-end in Japan, which would support our bias to ‘fade’ the recent move. But the recent BoJ shift may be important and warrant a change in view. Much will depend on the BoJ’s determination and the response to additional policy easing in fixed income markets. We look at Norway (and the NOK), which increasingly seems to follow the pattern of Asian ‘surplus’ countries. Given rising appreciation and inflation pressures and low interest rates, this creates scope for further NOK appreciation. ii March 2012
  5. 5. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystSuch a period of strong carry returns always raises the Cross Sectional Standard Deviation Remainsquestion of whether FX carry could again become a at Levels Close to Post-GFC Lows 8major investment theme. Back in the years leading up tothe Global Financial Crisis (GFC), diversified carry 7strategies delivered some of the highest Sharpe ratios ofany investment strategy. A revival of FX carry wouldtherefore be an important development for FX investors. 6There is a considerable body of academic research about 5carry strategies and the violation of UIP, but relativelylittle has been said so far about the reasons why carry has 4performed so badly in recent years. Depending onimplementations, total returns have been close to zerosince 2007 in most cases. As a starting point, we describe 3 Std Devn of 2Y Swap Ratessome key characteristics that drive carry returns and why. Average of 2Y Swap Rates 2Most simple FX carry implementations start with a 01 02 03 04 05 06 07 08 09 10 11 12 Source: Bloomberg, GS Global ECS Researchbasket of currencies on the long side and another bunchof currencies on the funding side. These strategies currencies from appreciating in response to easing bytypically perform well in the following broadly defined other countries, in particular the mature but debt-riddensituations: developed economies. In recent months, the Fed, BoE, ECB and BoJ have all engaged in additional non- When the average interest rate differential between conventional easing. Many central banks in smaller the high-yielding and the low-yielding currencies is developed countries and emerging markets (EM) were relatively high, as this represents the primary source of obliged to follow, unless they were willing to engage in returns. In the most basic description of carry returns, some form of ‘macro-prudential’ capital controls or one can assume that spot exchange rates follow a intervention to prevent their currencies from excessive random walk, which means that on average the return appreciation. The latest measures by Brazil are an will be close to the interest rate differential between excellent example of how the carry potential is being these two currencies. eroded by central bank rate cuts in combination with tighter capital controls. When the high-yielding currencies appreciate relative to the low-yielding ones (a strong violation of UIP). In Even from a slightly forward-looking perspective, when this case, a second source of return, spot looking at 2-yr swap rates, the overall level of rates appreciation, will be added to the gains from the remains low in most countries, with few expectations of interest rate differential. future tightening. Moreover, the cross-sectional standard deviation of interest rates also remains at levels close to When the correlation among the basket constituents the post-GFC lows (see chart). Simply put, interest rate is relatively low. This helps the diversification of differentials are small across the world, which means that idiosyncratic risks and hence increases risk-adjusted the primary driver of carry returns in the long run returns of carry strategies. remains very subdued. When the correlation between currency moves and broader risky asset returns are low, as this reduces Hypothetical return of shorting $/TRY % the likelihood of market-wide risk aversion swings via 1-year forwards affecting the risk-adjusted returns of the strategy. 120 100There is some overlap between these loosely definedconditions but each of them can be tracked relatively 80easily. 60 402. Many Headwinds for FX Carry Strategies RemainTaking the criteria introduced in the section above one by 20one, we can only conclude that the broader situation 0remains very unfriendly for FX carry. -20Interest rate differentials remain low across the globe. -40If anything, central banks seem to be engaging in a kindof competitive easing, as discussed by Kamakshya -60Trivedi and Stacy Carlson in a recent Global Economics 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Source: GS Global ECS ResearchWeekly. This is also partly an attempt to prevent iii March 2012
  6. 6. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystThe second issue above, additional spot returns, is easy Correlation Between FX Carry Strategiesto benchmark given that, on average, total returns on and SPX Remains High Indexcarry strategies have been almost perfectly flat since 0.62007. Although there have been periods of Correlation* between FX 230 Carry Basket and SP500outperformance, there have also been comparable 0.5 (lhs)stretches of underperformance. On average, the 210 0.4 FX Carry Basket (rhs)negligible total returns suggest that higher-yieldingcurrencies have depreciated sufficiently, while lower- 190 0.3yielding ones have appreciated, erasing all positivereturns from interest rate differentials. One could even go 170 0.2as far as to assert that UIP actually did hold in recentyears. Even at the country level, this is true for some of 0.1 150the higher-yielding currencies. In the chart on theprevious page, we plot the potential percentage return 0 130from buying the Turkish Lira against the USD via a 1-year forward and holding it to expiry. Starting right after -0.1 110 00 01 02 03 04 05 06 07 08 09 10 11 12the last Turkish financial crisis in 2001, total returnswould have been exceptionally high, at times reaching Source: GS Global ECS Research; *255 day correlationmore than 100%. However, since 2008, potential losseshave been about as frequent as gains in the +/-20% range. Finally, with individual currencies highly correlated withOn average, the spot moves in the Lira have fully offset each other and given broader risk sentiment, it is notany gains from higher interest rates. unexpected that diversified FX carry strategies also have a high correlation to risky assets. Indeed, theThe correlation between currencies has also remained daily return correlation between FX carry and the SPXvery high on our measures. It is not particularly easy to remains at high levels at around +40%, which is close tomeasure the cross currency correlation among the 30-odd where it has been since the GFC. As a benchmark, beforeliquid currency pairs, as there are around 200 possible the crisis started in 2007/08, the same correlationcross rates that one could compare. Depending on the typically oscillated around the +10% mark.specific choices, very different correlation patterns mayemerge. To tackle this issue in the past, we have simply After analysing all these related indicators, we concludelooked at the correlations of trade-weighted exchange that the recent rally in FX carry was probably no morerates to some third factor, typically some measure of than a correlated reaction to the improvement in broadermarket risk. If all currencies respond similarly to the risk risk sentiment. The forward-looking implication is thatfactor, they are likely also highly correlated among each the recent FX carry rally can only continue if the broaderother. The chart shows the average correlation in daily risk rally continues with little pullback.returns of the G10 and the most liquid EM currencieswith US stock markets. Given that we are not interested Alternatively, a broader shift back into a carry-favourablein the direction of this correlation but rather its strength, regime, similar to the pre-crisis period, would also help.we remove the sign and use the average ‘absolute’ However, this would imply that a number of centralcorrelations. As can be seen, these have been persistently banks would have to tighten monetary policy to raisehigh since the GFC; hence, we think it is unlikely that the interest rate differentials, which will take time. Crossconstruction of a broad carry basket offers any major asset correlations would have to become smaller, too. Sodiversification benefits. Most currency moves seem to be far, there is little evidence of this happening, as our chartsthe result of systemic risks. suggest. But that doesn’t mean the situation couldn’t change soon. We will watch our indicators closely. FX-Risky Asset Correlation Remains Exceptionally High0.45 3. Carry, the BoJ and the Yen Average of abolute return 0.4 correlation* between G10 After months of debating the latest twist in the ongoing currencies and the S&P500 Euro area crisis, a sudden BoJ-induced move in the Yen0.35 was a welcome distraction for many in FX markets. And, Average of abolute return 0.3 correlation* between EM as we have already seen several times in recent years, a currencies and the S&P500 sharp move higher in $/JPY triggers market speculation0.25 about the fundamentals finally changing. 0.2 Memories of high carry returns funded out of the Yen0.15 may be a factor as well, in particular if—as we discussed 0.1 above—FX carry seems to be experiencing a superficial revival. As in the previous section, ‘fade or follow’0.05 would seem to be the key question. 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Source: GS Global ECS Research; *255 day correlation iv March 2012
  7. 7. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly Analyst $/JPY A Sharp Move Higher in $/JPY since February JPY Bn Trade Balance Deteriorates but Income Balance Improves Notably 82 1200 Current Account Balance JPY spot (lhs) 1000 Net Portfolio Investment Income 81 Net Direct Investment Income 800 80 600 79 400 78 200 0 77 -200 76 -400 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 75 01Jan12 15Jan12 29Jan12 12Feb12 26Feb12 11Mar12 Source: Bank of Japan/ Ministry of Finance/ Haver Analytics/ Source: GS Global ECS Research GS Global ECS ResearchPerhaps the easiest way to approach the issue is simply to purchases have been concentrated at the very front endsummarise what has changed and what has not. We start of the yield curve so far has reduced the effectivenesswith the JPY factors that have changed recently: of QE. Moreover, the BoJ has remained substantially behind the asset purchase targets, which also suggests The most important factor is that the BoJ has recently a lack of conviction. Without a more convincing become more dovish. A redefinition of the inflation implementation of asset purchases and front-loaded target and a stronger commitment to reach this target purchases of longer maturity bonds, the JPY impact faster via increased asset purchases marks a significant may remain quite limited. departure from past policy—at least by Japanese standards. However, even if the BoJ became fully committed to more aggressive QE, the BoJ would still be at risk of Japan also experienced a substantial deterioration in being ‘out-eased’ by the Fed. Although growth has the trade balance, which moved into deficit in 2011 been surprising on the positive side in the US recently, for the first time since the early 1980s at least on a we still expect the Fed to ease more via a new program calendar year basis. of non-conventional policies to kick in after the ongoing ‘Operation Twist’. Further strong activity dataThe combination of a trade deficit and easier monetary in the US could change this, but for now there are nopolicy appear, on the surface, to reflect a substantial reasons to change our Fed forecast.deterioration in the factors that have supported the JPY inthe past. However, the situation remains much more In that respect it is interesting to note that $/JPY hascomplex, and so far it is far from clear if the JPY moved far ahead of essentially unchanged ratefundamentals have really changed that much. We would differentials. For example, if we look at 5-yr ratehighlight the following points, largely based on earlier differentials, BoJ QE would need to push 5-yr swapanalysis by Fiona Lake and our Japanese Economics rates down from currently slightly less than 50bp toteam: almost zero in order to bring the rate differential in line with the current spot rate above $/JPY 80. A large part of the deterioration in the trade balance appears to be of temporary nature, linked to global Foreign official investors continue to like the put more demand weakness and the disruptions from the Yen into their FX reserves. The regular IMF COFER earthquake as well as the floods in Thailand. data shows that over the last couple of quarters the Relocation of production to other countries with share of JPY-allocated FX reserves has been growing cheaper and more abundant labour has also played a steadily. Historically, the low interest rates in Japan role. However, the income balance remains strong and have probably been a hurdle to a larger allocation, but has improved notably recently, along with the with European and US interest rates now at deterioration in the trade balance. Overall, the current comparable levels the opportunity cost of holding account position of Japan is likely to remain in JPY-denominated bonds has gone down. From a pure solid surplus, as our Japanese colleagues have also diversification point of view, a larger Yen allocation argued. appears to be a rational choice, and without any monetary policy tightening expected in the rest of G3 a The degree of conviction conveyed by the BoJ continued increase in JPY reserve allocations should leadership through its actions and communications not be ruled out. has so far been slightly unclear. With regards to the change in the BoJ’s stance, the fact that bond v March 2012
  8. 8. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly Analyst $/JPY $/JPY has Moved Far Ahead of Rate Index US$/YEN vs GS Sentiment Index US$/YEN % Differentials 10 140125 4.5 Sentiment 8 Index (lhs)120 130 4.0 US$/YEN (rhs)115 6 3.5 120110 4 3.0 2105 110100 2.5 0 100 95 -2 2.0 90 -4 90 JPY spot (lhs) 1.5 85 -6 5Y Swap Rate Differential US 1.0 80 80 less Japan (rhs) -8 75 0.5 -10 70 1Jan04 1Jan06 1Jan08 1Jan10 1Jan12 08 09 10 11 12 Source: GS Global ECS Research Source: GS Global ECS Research With rate differentials failing to correlate with the Overall, most factors point to a likely reversal of the recent spot move, the search for alternative recent JPY move, and in that respect the ‘follow or fade’ explanations points to speculative long positioning in question would be relatively easy to answer. $/Yen. Our latest GS Sentiment Index (see page 39) suggests that $/JPY positioning is now longer than at However, we also have to recognise that the BoJ policy most times over the last two years, and probably shift is potentially a very important event, as also stretched. This would also imply that unwinding of highlighted by our Japanese colleagues. With the these positions could lead to a notable Yen rally. situation remaining fluid and with fiscal year-end still a few weeks away, we want to remain open-minded to the Returning to a point made above, risky asset possibility that a more substantial change has taken place correlations remain quite strong, and hence it is quite with regard to the JPY. In that respect, March 13 will be a likely that the continued rally in cyclical assets has key date as both the BoJ and the FOMC announce their helped $/JPY higher. monetary policy decisions. Any signs of continued reluctance by the BoJ to engage in more aggressive QE Lastly, it is important to signal that Japan is approaching would strengthen our preference for the ‘fade’ camp. The fiscal year-end, a period that has historically seen same applies for a dovish FOMC. strong seasonal trends. When we have analysed this phenomenon in the past, $/Yen displayed the strongest The ultimate litmus test will likely be interest rate trends, regardless of direction, in March. And in the last differentials on longer maturities. If they catch up with three years these trends have seen JPY weakness of the recent move, $/JPY may have more upside. comparable magnitude into fiscal year-end, only to reverse into JPY strength straight after the beginning of the new fiscal year in April. % of Rising Share of Yen Holdings Rally in Cyclical Assets may Have Helped total $/JPY Index in Global FX Reserves* $/JPY higher3.5 1375 85 JPY spot (lhs)3.0 Yen denominated S&P 500 (rhs) 1325 reserves2.5 83 12752.0 81 12251.51.0 79 11750.5 77 11250.0 05 06 07 08 09 10 11 75 1075 1-Mar-11 1-Jun-11 1-Sep-11 1-Dec-11 1-Mar-12 * Developing Nations, Source: IMF, GS Global ECS Research Source: GS Global ECS Research vi March 2012
  9. 9. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly Analyst $/JPY Another Temporary Fiscal Year End Rally for €/NOK EUR/NOK Moved Lower Recently $/JPY?102.5 10.50100.0 JPY spot (lhs) EUR/NOK 10.00 97.5 95.0 9.50 92.5 9.00 90.0 87.5 8.50 85.0 82.5 8.00 80.0 7.50 77.5 75.0 7.00 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 07 08 09 10 11 12 Source: GS Global ECS Research Source: GS Global ECS Research4. Norges Bank in the ‘Asian’ Corner prices now well above pre-crisis levels, as can be seen inThe following scenario is very much the standard case for the chart. Unsurprisingly, this credit-driven rise in housemost Asian surplus countries: prices also led to rather high levels of household indebtedness. Key measures of inflation also point to theCurrency appreciation is continuously resisted by a upside. And, in response to the Euro area crisis, Norgescombination of rather accommodative monetary policy Bank has already cut rates aggressively—by 50bp inand ongoing FX interventions. Every now and then, December.however, inflation starts to materialise, including in assetprices, which then triggers concerns for the monetary The situation now looks very much like the typical Asianauthorities. In practice, we often see Asian ‘surplus’ appreciation case. Without much scope to ease furthercountries tolerate more nominal appreciation during these and concerns about asset and goods prices, the logicalperiods of higher inflation and strong growth. But history conclusion would be to allow the currency to appreciate.has shown that many Asian currencies ONLY appreciate This is already happening to some extent but we thinkin these circumstances. there is more scope for appreciation and hence we have strengthened our already bullish NOK forecasts. We nowThe same dynamics seem to be at play in Norway see EUR/NOK at 7.30, 7.20 and 7.20 in 3, 6 and 12currently. Intervention is being conducted on behalf of months. Indeed, the trading range for our forecasts couldthe ‘Petroleum Fund’ (Government Pension Fund— easily reach 7.00, so there is potential for an even largerGlobal) to neutralise the revenues from oil exports. As ‘Asia-type’ move in the Nokkie.Lasse Nielsen has highlighted, growth is accelerating, asevident in strong positive surprises from business surveys We are also adjusting our EUR/SEK forecasts to reflectand industrial production. Moreover, years of low real recent strength but see much less upside for the Swedishrates have led to continued property price increases, with Krona than for its Norwegian cousin. Index Low Real Rates Have Led to Continued Property Price Increases 160 Norway House Price Index 140 New FX Forecasts New Forecasts Old Forecasts 120 3m 6m 12m 3m 6m 12m 100 EUR/NOK 7.30 7.20 7.20 7.70 7.70 7.60 EUR/SEK 8.80 8.70 8.60 9.00 8.90 8.80 80 EUR/CZK* 25.00 25.50 24.25 27.50 27.00 25.50 EUR/HUF* 315 315 325 340 350 320 60 EUR/PLN* 4.25 4.10 4.10 4.80 4.70 4.30 40 $/RUB 28.9 28.2 27.4 28.8 28.0 27.4 $/CNY 6.27 6.22 6.10 6.28 6.24 6.12 20 $/ARS 4.50 4.80 5.20 4.45 4.70 5.20 $/BRL 1.70 1.70 1.75 1.80 1.85 1.90 0 92 94 96 98 00 02 04 06 08 10 *Forecast changes released since our last FX Monthly was published Source: GS Global ECS Research Source: GS Global ECS Research vii March 2012
  10. 10. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystG3US DollarFX Forecasts: We maintain our EUR/$ forecast at 1.33, 1.38 and 1.45 in 3, 6 and 12 months respectively. Our $/¥forecast is unchanged at 77.0, 76.0 and 74.0. Current GSDEER for EUR/$: 1.20; $/¥: 105.7.Motivation for Our FX View: Since early February, the USD trade-weighted index has remained broadly flat. And inthe near term, until more of the Euro area risks are resolved, we could see renewed bouts of USD strength. But in themedium and longer term, broad Dollar weakness remains our core view. Underpinning our Dollar-bearish views are thestructural, large twin deficits that will likely persist. The overall monetary stance of the US is also one of the easiest inthe world following Operation Twist last September and given the likelihood of QE3 this year. In addition, theaccommodative policy in the majors should eventually prove supportive for risky assets and bearish for the Dollar.Monetary Policy and FX Framework: The Fed has a dual growth and inflation target. As a result, monetary policyhas generally been more volatile and reactive than in pure inflation-targeting countries. The exchange rate floats freely.The US Treasury is in charge of FX policy, although the Fed occasionally comments on currency issues too.Growth/Inflation Outlook: We expect real GDP growth to be around 1.9%qoq ann in Q1, as the strong contributionof inventories to the 3.0%qoq ann growth in Q4 is likely to fade. Also, consumer spending has decelerated and the dataflow was more mixed recently. We see considerable spare capacity in the economy, which underpins our view of adeceleration in core inflation.Monetary Policy Forecast: At the January meeting, the FOMC remained dovish despite the stronger data recently andpublished its forecast for the Fed Funds rate. The projections show that the Fed intends to keep rates close to zerothrough the end of 2014. The FOMC continued to highlight the slack in the economy and slowing inflation, and weexpect further easing through outright asset purchases in 1H2012.Fiscal Policy Outlook: Over the next few years, the US will need to undertake fiscal tightening of at least 6% of GDP.We expect only a modest fiscal tightening in the near term and most is likely to take effect after the presidentialelections.Balance of Payments Situation: The US BBoP deficit has narrowed sharply to -0.9% of GDP in Q3, reflecting to alarge extent the record level of foreign buying of US treasuries in August. The current account deficit narrowedmarginally to 2.9% of GDP in Q3, but we expect it to widen again in coming months.Things to Watch: The pace of the US cyclical recovery remains key to monitor given the implications for the relativemonetary stance and also for overall risk sentiment. In addition, we continue to monitor capital flow trends in themonthly TIC data for signs of any persistent improvement in the BBoP, and the fiscal and monetary policyannouncements. Fiona Lake and Constantin Burgi % of GDP EUR/$ 4qtr avg US: BBoP vs. Current Account1.70 21.50 01.30 -21.10 -40.90 -6 Current Account0.70 Spot BBoP GSDEER0.50 -8 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Source: Haver Analytics, National Source, Global ECS Research. 1 March 2012
  11. 11. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystUS Dollar %yoy US Industrial Production and real GDP %yoy US Inflation 15 6 Fcast 5 Fcast 10 4 5 3 2 0 1 -5 0 -1-10 G10 Inflation Industrial Production -2 US CPI Real GDP-15 -3 90 92 94 96 98 00 02 04 06 08 10 12 14 92 94 96 98 00 02 04 06 08 10 12 14 % yoy US Trade Volumes Index 1990=100 US Terms of Trade 3-mth ma 24 112 20 110 16 108 12 106 8 104 102 4 100 0 98 -4 96 -8 94-12 92 TOT-16 Exports Improvement 90-20 Imports 88-24 86 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 90 92 94 96 98 00 02 04 06 08 10 12Index GS Commodity Indices Index % FED rate vs. 10y yield and S&P500 Index600 1000 7 1600 S&P GSCI® Energy Index UST 10y yield S&P GSCI® Industrial Metal Index 900 FED funds rate 1500 S&P GSCI® Agriculture Index 6500 S&P GSCI® Index (rhs) SPX (rhs) 800 1400 700 5400 1300 600 4 1200300 500 3 1100 400200 1000 300 2 200 900100 1 100 800 0 0 0 700 00 01 02 03 04 05 06 07 08 09 10 11 12 99 00 01 02 03 04 05 06 07 08 09 10 11 12 2 March 2012
  12. 12. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystEuroFX Forecasts: We maintain our EUR/$ forecast at 1.33, 1.38 and 1.45 in 3, 6 and 12 months respectively. EUR/¥ is at102.4, 104.9 and 107.3. Current GSDEER for EUR/$: 1.20.Motivation for Our FX View: Since late January, the Euro has been broadly flat against the USD, with the secondLTRO and stronger data supporting the EUR, and the uncertainties regarding the Greek PSI (which are yet to be fullyresolved) pulling in opposite directions. The Euro may thus remain volatile in the short term, before strengthening asper our medium- and long-term views. The key driver of our view is that FX markets will remain dominated by broadDollar weakness, particularly on the back of the weakness of the US external balance. The Euro area BBoP remainsstrong on a trend basis, whereas the US has recorded large deficits for some time. A gradual further decline in the Euroarea fiscal risk premium should boost the Euro. These factors should enable the Euro to trade strongly relative to fairvalue for a protracted period.Monetary Policy and FX Framework: The ECB is a strict inflation targeter. As a central bank serving 17 countries,the ECB is arguably the most independent central bank in the world. The Euro is a freely-floating currency. FX policyresponsibility is not clearly defined, but in practice the ECB is unlikely to act in FX markets without Eurogroupapproval.Growth/Inflation Outlook: The Euro area manufacturing PMI increased marginally in February to 48.9; thiscompares with the February US ISM decrease to around 52.4. Euro area business surveys suggest upside risks to ourcurrent GDP forecasts and we expect Q1 GDP to come in at -0.3%qoq. For the entire year, we forecast -0.4% real GDPgrowth in 2012 followed by 0.7% in 2013. We see inflation falling to 1.8% in 2012 from 2.7% in 2011 and to 1.5% for2013 as the food and energy contribution declines.Monetary Policy Forecast: The ECB left rates unchanged at 1.00% in March and specified that while there aretentative signs of stabilisation, downside risks to activity prevail. The inflation risks remained broadly balanced. Wethink the ECB will keep rates at 1.00% through 2013.Fiscal Policy Outlook: Many governments in Europe are heading into substantial fiscal consolidation, which is likelyto prove a drag on growth. However, the relative fiscal positions between the Euro area and the US are what mattersfor the EUR/$, and the US also faces large adjustment needs of its own, which have not yet been addressed.Balance of Payments Situation: The Euro area runs a small current account deficit, which is fully financed by netFDI and net portfolio flows on a trend basis, leading to a quite positive BBoP.Things to Watch: Developments in the European Sovereign Situation, in particular the outcome of the Greek PSI deal. Fiona Lake and Constantin Burgi % GDP Euro area: BBoP vs Current Account EUR/$ 12-mma1.70 5% CA 4% BBoP1.50 3% 2%1.30 1%1.10 0% -1%0.90 -2%0.70 Spot -3% GSDEER -4%0.50 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 -5% 98 00 02 04 06 08 10 12 3 March 2012
  13. 13. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystEuro %yoy Euro area Industrial Production and real GDP %yoy Euro area Inflation 10 5 Fcast Fcast 4 5 3 0 2 -5 1 0-10 Industrial Production -1 Real GDP-15 -2 G10 Inflation Euro area CPI-20 -3 90 92 94 96 98 00 02 04 06 08 10 12 14 92 94 96 98 00 02 04 06 08 10 12 14 % yoy Euro area Trade Volumes Index Euro area Terms of Trade 3-mth ma 2000=100 20 130 16 125 12 120 8 115 4 110 0 105 -4 100 -8 95-12 TOT-16 Exports 90 Improvement-20 Imports 85-24 80 01 02 03 04 05 06 07 08 09 10 11 12 90 92 94 96 98 00 02 04 06 08 10 12 % EUR/$ Vol EUR/USD: 3-mth Risk Reversals EUR/$ vs 2-yr Rate Differential 3 1.8 2.0 2-yr Germany Swap Minus 2-yr US Swap EUR/$ (rhs) 1.7 1.0 2 1.6 0.0 1 1.5 -1.0 0 1.4 -2.0 1.3-1 1.2 -3.0-2 1.1 -4.0-3 1.0 06 07 08 09 10 11 12 -5.0 08 09 10 11 12 4 March 2012
  14. 14. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystJapanese YenFX Forecasts: Our views have not changed. We continue to expect $/JPY to trade at 77, 76 and 74 in 3, 6 and 12months. EUR/¥ is 102.4, 104.9 and 107.3. The current $/¥ GSDEER is 105.7 and EUR/¥ is 126.6.Motivation for Our FX View: JPY has depreciated by about 6% against the USD since early February, with the bulkof the move generated by a surprise easing move from the BoJ at the February meeting, which included a firming ofthe commitment to 1% inflation in the medium term. At this point we would be inclined to fade this weakness unlessthere is further, more aggressive easing from the BoJ. Our view is based on our expectation of further QE from theFed, the fact that Japan continues to run a more positive external balance than the US and that positioning in USD/JPYappears to be rather long. Further reserve diversification into the Yen would also be supportive.Monetary Policy and FX Framework: The BoJ has effectively shifted back to a zero interest rate policy. The Yen isformally a freely floating currency, but the MoF is in charge of FX policy and has often intervened in the past. SinceSeptember 2010, there have been several examples of bilateral intervention, as well as the post-earthquake co-ordinated intervention.Growth/Inflation Outlook: While the Japanese economy has recovered more strongly than expected from the Marchearthquake, it faces the challenge of a slower global environment over the next 6 months and beyond. This will weighon export performance, as will the strength of the Yen. We now expect growth to be 2.0% in FY2012, with public-sector demand offsetting the global slowdown. We expect growth to be 1.8% in FY2013, a fairly strong print, which islikely to be helped by the frontloading of demand ahead of a potential consumption tax hike in 2014. We expectinflation to turn positive in 4Q2012, but price pressures are likely to remain mild.Monetary Policy Forecast: The BoJ increased, and extended to end 2012, its Asset Purchase Program by JPY10trn toJPY65trn on February 14, probably due to an ongoing dovish Fed and domestic political pressure. For the Yen toremain weak, the BoJ is likely to need to extend its recent easing further. As yet, progress on the asset purchaseprogram remains slow.Fiscal Policy Outlook: Japan has introduced several rounds of supplementary budgets after the earthquake, totalling atouch above 4% of GDP. A consumption tax hike is being debated for 2014 to stabilise the worrying debt trajectory.Balance of Payments Situation: Japan continues to run a BBoP surplus on the back of a current account surplus,which is dominated by a positive income balance. Unlike in other countries, bond outflows in recent years havetypically coincided with Yen strength.Things to Watch: Any further aggressive policy action from the BoJ/Japanese government. Any increased focus onthe Japanese fiscal and debt levels, particularly if question-marks over unsustainability start to emerge more forcefully. Fiona Lake % GDP Japan: BBoP vs Current Account $/¥ 12-mma300 8% Spot 6%250 GSDEER 4% 2%200 0% -2%150 -4%100 -6% CA -8% BBoP 50 -10% 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 5 March 2012
  15. 15. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystJapanese Yen %yoy Japan Industrial Production and real GDP %yoy %yoy Japan Inflation 15 40 5 Fcast G10 Inflation Fcast 30 4 Japan CPI 10 20 3 5 10 2 0 0 1 -10 0 -5 -20 -1-10 Real GDP -30 -2 Industrial Production (rhs)-15 -40 -3 90 92 94 96 98 00 02 04 06 08 10 12 14 92 94 96 98 00 02 04 06 08 10 12 14 % yoy Japan Trade Volumes Index Japan Terms of Trade 3-mth ma 2000=100 50 150 40 140 30 130 20 120 10 110 0 100-10 90-20 80 TOT Exports 70 Improvement-30-40 Imports 60-50 50 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 % $/JPY Vol USD/JPY: 3-mth Risk Reversals $/JPY vs 2-yr Rate Differential 8 125 2 2-yr US Swap Minus 2-yr Japan Swap 7 $/JPY (rhs) 120 0 6 115 5 110 -2 4 105 -4 3 100 2 95 -6 1 90 -8 0 85-1 80 -10-2 75 06 07 08 09 10 11 12 -12 08 09 10 11 12 6 March 2012
  16. 16. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystEurope, Middle East & AfricaBritish PoundFX Forecasts: We maintain our EUR/GBP forecasts at 0.87 in 3, 6 and 12 months. Given our EUR/$ forecasts, thistranslates into GBP/$ at 1.53, 1.59 and 1.67 in 3, 6 and 12 months. Current GSDEER for EUR/GBP is 0.79 and forGBP/$ is 1.51.Motivation for Our FX View: Sterling is trading at a discount to fair value vs the EUR. However, persistently highinflation prints have started to erode GBP valuation. GBP has recently benefited from safe haven flows linked to theEuro area crisis and a broader weakening of the EUR. Therefore, it has overshot our forecast. Cyclically, theconsolidation in fiscal policy combined with an accommodative monetary policy stance is typically negative for FX(the BoE eased monetary conditions by increasing asset purchases by GBP50bn over three months). These forcesshould keep GBP within our flattish forecast path, with the recent strength reversing in the near term. Broader USDweakness should lead to considerable strength in Cable.Monetary Policy and FX Framework: The Bank of England is tasked with price stability, defined as CPI at 2% overtime. If inflation falls below 1% or rises above 3%, the BoE must write a letter of explanation to the Chancellor of theExchequer. Sterling operates under an entirely free float, although the BoE occasionally comments on exchange ratedevelopments.Growth/Inflation Outlook: We expect the economy to grow by 1.2% in 2012 (above consensus of 0.5%) and by 2.3%for 2013. The composite PMI fell to 53.6 in February, with both manufacturing and services falling. In January,headline CPI fell sharply to 3.6% as the effect of the 2011 VAT hike faded. We expect inflation to continue to fall inthe coming months and average 2.6%yoy in 2012 and 2.0%yoy in 2013.Monetary Policy Forecast: The BoE extended asset purchases at its February meeting (GBP50bn over three months),due to weak growth and thus considerable easing in inflation pressures. We expect a further easing by GBP50bn inMay.Fiscal Policy Outlook: The government has set out a plan for an 8% of GDP reduction in the structural deficit and 9%of GDP in the primary structural deficit. Three-quarters of the adjustment will occur via spending cuts, while thechange in taxes is minor in comparison.Balance of Payments Situation: We expect further improvements in the current account balance. Our forecast is foran improvement to -1.8% of GDP for 2012 before moving back to -2.3% for 2013, after -2.4% in 2011. Meanwhile,portfolio flows remain notoriously difficult to assess given the large gross cross-border flows linked to London as afinancial centre.Things to Watch: The impact of fiscal policy on final demand and the trajectory of the PMI remain the key factors towatch. A sudden change in the Bank of Englands stance would be relevant as well. Constantin Burgi % GDP UK: BBoP vs Current Account EUR/£ 4-qtr ma1.00 20% CA0.90 15% BBoP0.80 10%0.70 5%0.60 0%0.50 -5% Spot0.40 -10% GSDEER0.30 -15% 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 91 93 95 97 99 01 03 05 07 09 11 7 March 2012
  17. 17. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystCzech KorunaFX Forecasts: We recently revised our EUR/CZK forecasts to 25.00, 25.50 and 24.25 in 3, 6 and 12 months,respectively, from 27.5, 27.0 and 25.5. This implies a USD/CZK forecast of 18.80, 18.48 and 16.72. Current GSDEERfor EUR/CZK is 23.09, equivalent to a 7.0% undervaluation against the EUR. USD/CZK GSDEER is 19.28.Motivation for Our FX View: We expect the Koruna to be supported in the near term by a more positive outlook forthe Euro area and its banks, and global liquidity in general. We see a risk that the CZK weakens towards the middle of2012, on profit-taking and repatriation of FDI income, but a generally strong balance sheet, low stock of external debtand limited reliance on foreign funding should help the Koruna appreciate in 2H2012. Euro area news will continue toaffect the Koruna; however, it should remain the least sensitive currency in the CE-3.Monetary Policy and FX Framework: The CZK is a freely-floating currency. However, since the economy is veryopen, the CNB monitors FX movements when setting interest rates. The inflation target is 2%.Growth/Inflation Outlook: Growth is likely to stay below potential in 2012 as the external environment weakens,especially in the Euro area; domestic demand should remain weak because of low consumer sentiment and continuedfiscal restraint. We expect inflation to stay above the target for the rest of 2012 following a VAT hike in January, but itshould start to decline from 2H2012 onwards; weak domestic demand should reduce other inflationary pressures.Monetary Policy Forecast: The CNB has kept the policy rate at a record low 0.75% since April 2010, after a total of300bp in cuts. In the absence of domestically generated inflationary pressures and a weakening growth outlook, theCNB will not respond to the recent inflation jump. However, cuts are unlikely as well, suggesting an even longer waitand see period.Fiscal Policy Outlook: The three-party governments determination to keep public finances in check and balance thebudget in the medium term has been appreciated by investors and rating agencies, and has kept long-term rates well-anchored, leading to a two-notch upgrade by Standard and Poors in 2012. The ongoing consolidation resulted in alarge deficit reduction in 2010 and 2011, but it is affecting consumer sentiment, which was already low following thecrisis, and will continue to weigh heavily on domestic demand.Balance of Payments Situation: The Czech Republic maintains a trade surplus although the income account remainsin deficit due to the high repatriation of FDI profits. The current account should therefore stay in deficit in 2012-13,although it should be easily financed with steady FDI and other inflows.Things to Watch: The economy is highly integrated with the Euro area through trade and financial links, and hencealso with the global economy. The growth outlook abroad therefore has direct implications for Czech exports anddomestic growth, while the financial standing of Euro area banks has a strong impact on the Koruna outlook. Still, awithdrawal from the country or deleveraging is unlikely, given the strong balance sheets of local banks and ampledomestic funding. Magdalena Polan % GDP Czech Rep: BBoP vs Current Account EUR/CZK 4-qtr ma 45 10% Spot 8% 40 GSDEER 6% 35 4% 2% 30 0% 25 -2% 20 -4% -6% 15 CA -8% BBoP 10 95 97 99 01 03 05 07 09 11 13 -10% 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 8 March 2012
  18. 18. Goldman Sachs Global Economics, Commodities and Strategy Research The Global FX Monthly AnalystHungarian ForintFX Forecasts: We recently revised our EUR/HUF forecasts to 315 in 3 and 6 months and 325 in 12 months, from 340,350 and 320, respectively. This implies USD/HUF at 236.8, 228.3 and 224.1 in 3, 6 and 12 months. Current GSDEERfor EUR/HUF is 288.9, which implies a 2.2% undervaluation against the Euro. USD/HUF GSDEER is 241.2.Motivation for Our FX View: The HUF will likely remain under pressure in 2012 as the government proceeds withthe difficult negotiations with the IMF/EU, and as uncertainties over the eventual outcome persist. Setbacks innegotiations, an escalation of disagreements with the EU, or increased risk that Hungary again loses access to debtmarkets, could lead to a rapid weakening of the Forint, although the recent improvement in the Euro area outlook andglobal liquidity could limit the downside risks. An eventual agreement would stabilise the HUF; nevertheless, theForint will likely remain under sustained depreciation pressure as domestic deleveraging continues and risks toprogram implementation persist. The Forint will remain vulnerable to domestic political news and changes in globalrisk appetite. Positive news, such as a lasting solution to the FX debt problem or visible progress in negotiations, wouldbe HUF-positive.Monetary Policy and FX Framework: The NBH targets inflation at 3% in the medium term (18 months-2 years). TheMPC normally holds rate-setting meetings every fourth Tuesday of the month.Growth/Inflation Outlook: Growth reached 1.4% in 2011, thanks to a recovery in external demand; domestic demandremained depressed. The combination of an external slowdown and further fiscal austerity will likely result in a small0.5% contraction in 2012. Inflation will stay above the NBHs target until end-2013 as indirect tax hikes, higher energyand fuel prices, and the effects of a weaker Forint drive up inflation.Monetary Policy Forecast: The NBH hiked rates by 100bp in late 2011 to support the Forint and reduce the risk ofcapital outflows. We think it may have to hike by 100bp more if negotiations with the EU/IMF stall and the HUFweakens sharply; an eventual agreement should lead to gradual cuts.Fiscal Policy Outlook: The Fidesz government is implementing structural reforms to stabilise public finances in thelong term and plans to follow a restrictive budget in 2012 to counteract weakening growth as it aims to meet anambitious deficit goal. Long-term fiscal sustainability will be at the core of the eventual IMF/EU agreement but weakgrowth would likely necessitate a lengthy adjustment.Balance of Payments Situation: The current account should remain in surplus in 2012-13, but capital outflows arelikely to put pressure on the financial account and the HUF. Without additional financing or a new IMF/EU program,Hungary could face a 7%-of-GDP funding gap in 2012.Things to Watch: Risks of a BoP crisis have increased and Hungary needs another sizeable IMF/EU deal to securesubstantial external financing. But the negotiations will be difficult as the government tries to minimise theconditionality associated with another program, and the recent improvement in risk sentiment reduces the urgency tosecure a credible program. Magdalena Polan EUR/HUF % GDP Hungary: BBoP vs Current Account 4-qtr ma320 20% CA BBoP290 15%260 10%230 5%200 0%170 -5%140 Spot GSDEER -10%110 80 -15% 95 97 99 01 03 05 07 09 11 13 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 9 March 2012