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Why Nomura, Standard Chartered believe weak yen may impact rupee, other currencies

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Why Nomura, Standard Chartered believe weak yen may impact rupee, other currencies

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In an interview with CNBC-TV18, Rob Subbaraman, Head of Global Macro Research, Nomura, and Steven Englander, Managing Director, Standard Chartered Bank shared their insights on the weakening yen and how it could impact rupee.

Dollar index, which is a measure of the US dollar relative to a basket of currencies, is at a 5.5 year high.  The ascendant US dollar is headed for its best month in a decade, as renewed yen selling cemented the greenback’s strength against major peers.
Yen, on the other hand, is down almost 7 percent in April, its worst since November 2016. It was last quoted at 130.53 per dollar after falling as low as 131.25 on Thursday, following the Bank of Japan's pledge to buy endless amounts of bonds daily as needed.
In an interview to CNBC-TV18, Steven Englander, managing director, Standard Chartered Bank, said that he is seeing some spillover effects from a weak yuan. He explained that right now, the currency market is in a state of panic. He worries that rupee, other currencies could get impacted by a weaker yen.
Englander said, "I think in particular, you are beginning to see some spillover effects from a weak yen on other Asian currencies and the movement that the CNH made overnight, immediately upon the Yen move suggests that there is some concern that further Yen weakness could signal broader weakness across Asia among Japan's competitors."
He added, "Right now, the market is almost in a panic state and so even without news, the dollar seems to be going up. There are technical levels that are being broken. So it is foolish to say the dollar can't go further in the short term."
Concurring with Englander, Rob Subbaraman, Head of Global Macro Research at Nomura, said that there is a risk of weakness spreading to currencies of emerging markets.
He said, "We have seen some of the more frontier markets, Sri Lanka, Egypt, Pakistan's currencies coming under quite a lot of pressure. I think the risk right now is that we could see weakness spreading to other emerging market currencies, particularly ones that are net oil importers and where central banks are at risk of kind of falling behind the curve with negative real interest rates."
Subbaraman expects that the rate hikes will get even larger. He believes that even weak GDP numbers won’t deter the Fed from its hawkish stance.
He said, "We are expecting the Fed to announce 50 basis points rate hike. Nomura's view is that the rate hikes are going to get even larger. We think the Fed really does need to get back to a more neutral setting as soon as it can."
Fed will likely lay out its balance sheet lay off plan though it will steer clear of the USD 95 billion run-off in May, shared Subbaraman.
He said, "We think the Fed is going to lay out all the details on its balance sheet run-off plan, which we think will start very soon after the FOMC meeting. We think later in the month of May, they will start a run-off of around 25 billion per month. But we think that will be quickly ramped up maybe as soon as by August to the full amount of 95 billion per month."
(With inputs from Reuters)
Watch the video for the full interview
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