Back
15 Mar 2013
Forex Flash: Inflation in focus as central banks embark on easing – UBS
FXstreet.com (Barcelona) - According to Research Analysts Gareth Berry and Geoffrey Yu at UBS, “One of the main concerns in the era of zero rates has been latent inflation and inflation expectations. Thankfully for most central banks engaging in quantitative policy, liquidity preference has far outweighed initial expectations as well.”
Weak growth obviously played a key role: the ever-growing cash sitting on private sector balance sheets meant Fed asset purchases only served to offset deleveraging, rather than encourage leverage. In addition, the Eurozone crisis generated additional demand for cash equivalents as investors seeking simple capital preservation sought the most liquid havens.
In Switzerland's case, balance sheet expansion by the SNB was needed to meet this, but not only did inflation expectations fail to materialize, however the SNB even ended up exporting deflation: diversification flows encouraged excessive appreciation in currencies like SEK and CAD, contributing to downside price pressures in those markets.
Weak growth obviously played a key role: the ever-growing cash sitting on private sector balance sheets meant Fed asset purchases only served to offset deleveraging, rather than encourage leverage. In addition, the Eurozone crisis generated additional demand for cash equivalents as investors seeking simple capital preservation sought the most liquid havens.
In Switzerland's case, balance sheet expansion by the SNB was needed to meet this, but not only did inflation expectations fail to materialize, however the SNB even ended up exporting deflation: diversification flows encouraged excessive appreciation in currencies like SEK and CAD, contributing to downside price pressures in those markets.