ForeignExchange Forecasts: February 2014.
· We revise our EM FX forecastsmaterially weaker this month to reflect the reality of deterioratingfundamentals. Weaker growth, worsening current account balances, less helpfulexpected G10 policy and an overhang of global investor positioning in EM asset marketsare all negatives.
· From here, BRL, RUB and TRY areweakest in the forecast. Carry adjusted, USD gains are biggest in BRL, THB andHUF.
· More broadly, 2014 tradingstill shows a continuation of second-half 2013 trends. The USD is up vs. weakEM, stable vs. G10 overall but losing ground to EUR and GBP.
· Our forecasts show more upsidein EUR and GBP. The former is helped by BBOP flows. The latter by a very strongcyclical recovery and early rate hikes. But EUR, GBP, JPY and CHF forecasts areall unchanged this month.
· Changes in G10 are in thesmalls. AUD is forecast a little firmer reflecting RBA policy and CAD a littleweaker on the back of poor fundamentals. SEK is also forecast weaker reflectingfurther disappointments on economic data and low inflation. We see NOK/SEKtrending higher.