Weekly International Financial Outlook

Key exchange rate and interest rate forecasts are largely unchanged from last month. Key exchange rate and interest rate forecasts are largely unchanged from last month. Our central view remains that the US dollar will appreciate against its main peers in the next 6-18 months, underpinned by US growth outperformance. We predict that the Fed will be the forerunner among the major central banks in raising official interest rates, potentially later this year. However, the global recovery will be led by the emerging market economies, principally from Asia. Robust economic growth is already fuelling concerns about inflation in some emerging markets, putting strong pressure on their central banks to tighten monetary policy. Although the near-term outlook for emerging market currencies is clouded by growing official efforts to limit appreciation, their continued attractiveness to foreign investors is likely to eventually tell. We forecast China will reintroduce gradual renminbi appreciation shortly, with $/Cny predicted at 6.61 at end-2010 and 6.38 by end-2011.

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