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Flash: Value hunting in G10 currencies ignores EM – UBS

FXstreet.com (Barcelona) - We have seen over the past few days how value hunting in G10-risk currencies has not been felt in EM, and consensus is forming that the moves in these markets will be structural.

According to Gareth Berry, a Research Analyst at UBS, “Consequently, EM central banks more likely to be worrying about defending their currencies against depreciation in the medium term and as it stands, 2013 will then mark the year in which reserve growth peaks. It is even reasonable to entertain the prospect of reserve accumulation hitting an absolute ceiling, especially if in the longer term EM countries choose to transition towards market-driven exchange rates and embrace a post-export growth model.”

For G10 FX, this could herald the gradual erosion of one of the market's fundamental drivers in diversification. Over the last 10 years periods of dollar strength have been associated with very weak reserve growth, and vice-versa. For over a year, reserve growth on an annualized basis has been stuck in the single digits - highlighting the lack of export/savings growth amongst the traditional accumulators. “This means the traditional marginal seller of dollars in FX markets no longer has the firepower of the past.” Berry adds.

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