Currency Movements and Global Macro Calls

2013 Year Ahead Report published by Bank of America Merrill Lynch Global Research features 10 macro calls on the world economy. One call regarding interest rates and currencies states that "the U.S. dollar and euro could rally on the global recovery and greater fiscal clarity, pushing the yen lower and emerging market currencies higher." Another recall, regarding the crisis in Europe, states that "the big tail risk of a eurozone breakup has likely passed."

With this theme in mind, it was announced on Monday that Japan would further devalue its currency. It has already fallen 14% since October, and this has been helping the country's exports. Prime Minister Abe has "[stepped] up the pressure for the Bank of Japan to ease monetary policy" and increase the inflation target to 2%. The yen currently trades at 88.95 on the US dollar, which is near its 52-week high. While the yen has been pushed lower, the euro has hit an 11-month high against the US dollar, at $1.3382. Yields on Italian and Spanish 10-year bonds have stabilized to 4.19% and 5.03%, respectively. These numbers do go along the macro call from report that "European economy should stabilize as the year progresses."

Sources:

• http://money.cnn.com/2013/01/13/news/economy/japan-yen/index.html?iid=HP_River
• http://www.reuters.com/article/2013/01/14/us-markets-global-idUSBRE88901C20130114
• http://newsroom.bankofamerica.com/press-kit/bofa-merrill-lynch-global-research-2013-year-ahead-report
• http://www.bloomberg.com/quote/USDJPY:CUR
• http://www.bloomberg.com/markets/rates-bonds/