Mitul Kotecha, Head of Global Foreign Exchange Strategy, said, “There has been a dramatic improvement in risk appetite over recent months almost back to pre-crisis levels. Whilst some of this optimism is justified by the turnaround in economic conditions, there are still many uncertainties about the pace and shape of recovery. There is a clear risk that economic reality may not live up to expectations, and our forecasts predict a sub-par recovery for the G4 economies. Banking sector problems could continue to dampen the appetite for lending whilst household deleveraging and the ranks of unemployed will cap consumer spending. Consequently, we see no rate hikes throughout 2010 in the US, Japan, Eurozone and UK whilst unconventional policy measures are only likely to be withdrawn gradually. The US dollar is likely to remain under pressure over the next few months, as risk appetite continues to improve and US interest rates remain low. Further out, a relatively favourable growth outlook in the US and the pricing in of higher US interest rates will result in some cyclical dollar recovery.”

Sébastien Barbé, Head of Emerging Market Research and Strategy, said, “Asia is recovering strongly, benefiting from proactive fiscal policies, from the global improvement as well as from China’s large stimulus plan, which has supported trade in the region. Trade will improve further as the G3 demand gradually firms. That being said, Asia would be vulnerable to a double-dip in the US, given its strong export focus. On a more medium term perspective, the 2008-2009 financial crisis has likely acted as an accelerator for the emergence of Asia as a major actor in the global economy, thanks to the resilience of large economies such as China and India, and to the absence of a debt problem in Asia (by contrast with the US). Asian currencies should benefit. Rather strong growth prospects, together with quicker rise in interest rates in Asia compared with the US and Europe, and resilient balances of payment, should allow most Asian currencies to appreciate vs. USD, EUR and JPY in the next one year.”

The 2nd part of Fixed Income Markets (FIM) Investment Series 2009 will be held in Hong Kong on October 29, 2009.