EUR: Best G10 currency in 2017 – SocGen

Kit Juckes, Research Analyst at Societe Generale, suggests that the best G10 currency in 2017 was the Euro while the worst was the US dollar.

Key Quotes

“That really wasn’t obvious at the end of 2016. My first note in 2017 pointed at the yen had nearly fallen too far/too fast to sell, the dollar was getting closer its peak and the Euro was cheap but unbuyable before the French elections. What I meant to say, obviously, was that the yen had fallen as far as it could, the dollar was at its peak on that very day and the Euro was as cheap as chips and we just needed to close our eyes and believe in Macronism.”

“One of the lessons of 2017 may be that total returns include interest and that matters even in this low-rate world. A dollar buyer of Turkish Lira lost 6.6% in spot terms in 2017 but earned 11.2% in interest (according to Bloomberg). Rouble, Rand, Real and Mexican Peso all owe much or all of their performance this year to carry. That’s a party which will run out of juice eventually, but not on January 1.”

“While the US, having broken free from the zero bound, is perceived to be moving towards a clear destination, the debate this side of the Atlantic is still about when the ECB will finally start to raise rates. At the moment, the market prices a chance of a little under 50% that we’ll see a rate hike in 2018. The ECB has currently got no intention of doing any such thing. The parallel shift up in Euro forward rates has helped the currency, but from here, further progress may need clear signs that an earlier hike is possible.”