Economic slowdown confirmed: now what?

- "The global mid-cycle slowdown that we introduced in our previous Forecast Update has materialised further, but without pushing the pro-cyclical currencies lower. The slowdown is already priced in markets and if the outlook doesn’t deteriorate further, we don’t think the ‘smaller’ G10 currencies will lose ground against the ‘larger’ ones."
- "Risk sentiment remains an important – but rather unpredictable – driver to our forecasts and we regard financial markets as closely interlinked across asset classes. We recommend to consider a higher-than-normal degree of FX hedging."
- "We see both downside and upside risks to EUR/USD and foresee a bumpy ride around the current spot level with a moderate upward bias on the longer horizon as the most likely. We think the BoJ will prevent JPY from drifting much stronger in the short run and keep our bias for weaker yen in the long run. We remain positive on the Scandinavian currencies but acknowledge that levels may seem stretched and that risk-reward has been better."

DenDanske FX Forecast Update 20100915

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