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:
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Shift from the US dollar as a reserve currency will be gradual, driven by global uncertainty and lack of a clear alternative.
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ECB President Lagarde said the euro could play a larger reserve role, but this requires:
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Stronger geopolitical and legal foundations in Europe
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Deeper capital markets supported by a robust European economy
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A long-term process with no quick fixes
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Bank of Korea Governor Rhee reinforced the gradual theme, citing:
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Recent Korean won strength reflects domestic political stability, not just USD weakness
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Increased hedging ratios by domestic fund managers have supported currencies like the won, Taiwanese dollar, and Japanese yen
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This article was written by Eamonn Sheridan at www.forexlive.com.