Currencies
The Region's Week in Review: Currencies and Elections
2024-11-26
The region embarked on a remarkable week yesterday, setting the tone with significant events in both the currency and political arenas. EUR/USD witnessed a notable relief, which in turn sparked a decent rally in CEE FX. However, our analysis suggests that this rally may not be long-lasting. The persistent pressure on the USD remains evident in the market, and as we have previously discussed, CEE seems to be lagging behind the emerging market trend.

Polish Industrial Data and Retail Sales

Yesterday's Polish industrial data delivered a pleasant surprise for the first time in four months. This positive development hints at a potential positive bias for today's retail sales. Last month, retail sales significantly missed the downward target. Simultaneously, the National Bank of Poland's market pricing leans strongly towards the dovish side. This implies that in the event of positive surprises from the economy or Friday's inflation, there is a likelihood of easier hawkish repricing. Conversely, if there are no such surprises, a larger cut is not expected. Consequently, the zloty has a good chance of outperforming other CEE currencies in the coming days, even if a lower EUR/USD reintroduces pressure to the region. This is our base assumption.

Polish Industrial Data - A Positive Turn

The recent positive surprise in Polish industrial data is a significant development. It indicates that the Polish economy may be showing signs of recovery. This could have a ripple effect on various sectors and contribute to the overall economic growth. The fact that it came after four months of relatively stagnant data is particularly noteworthy. It gives hope for a more prosperous future and may influence investor sentiment.

Retail Sales and Market Expectations

The upcoming retail sales data in Poland is closely watched by the market. The previous month's significant miss to the downside has raised concerns. However, the positive industrial data provides some optimism. If retail sales can meet or exceed expectations, it could boost investor confidence and lead to further appreciation in the zloty. On the other hand, if there is another miss, it may put additional pressure on the currency. Market participants will be closely analyzing these data points to make informed investment decisions.

Romanian Presidential Elections

The first round of the presidential elections in Romania brought unexpected challenges for the main ruling parties. Smaller parties celebrated their advancement to the second round. The market reaction was highly negative due to the level of surprise and the likely delay in forming a new government after the general election next weekend. This uncertainty has created volatility in the market and raised questions about the future economic stability of the country.

Impact on the Market

The negative market reaction to the Romanian presidential elections is a clear indication of the importance of a stable government. The delay in forming a new government could lead to policy uncertainties and disrupt economic activities. Investors are cautious and waiting for more clarity on the political situation. The spread between ROMGBs and CEE peers has widened significantly since early 2023, reflecting the market's concerns.

Government Formation and Fiscal Policy

The swift formation of a new government is crucial for maintaining control over next year's budget and keeping the deficit at current levels. The automatic pension increases under current conditions add to the complexity. Market participants are closely monitoring the situation and hoping for a clear roadmap on future fiscal policy. A well-structured fiscal policy is essential for the long-term stability and growth of the economy.

Near-Term Outlook and Bond Market

Although the near-term outlook appears negative, there is hope that greater diversity in the future government could lead to more proactive action on the fiscal side. This, in turn, could provide support to the bond market after a challenging period. The bond market has been through a lot, and any positive developments in fiscal policy could help restore investor confidence.

Challenges and Opportunities

The current challenges in the region present both challenges and opportunities. On one hand, the negative market sentiment and political uncertainties pose risks. On the other hand, there is potential for positive change if the right policies are implemented. It will be crucial for policymakers and market participants to work together to navigate through these difficult times and pave the way for a more stable and prosperous future.

Looking Ahead

As we move forward, it will be essential to closely monitor the developments in the currency and political markets. Any changes in policy or market sentiment could have a significant impact on the region's economic outlook. By staying informed and proactive, we can better prepare for the challenges and seize the opportunities that lie ahead.
Crypto Bulls Anticipate Trump's Bitcoin Strategic Reserve
2024-11-24
Donald Trump's potential establishment of a "bitcoin strategic reserve" has sparked significant excitement within the crypto industry. Supporters believe it could offer a solution to manage the US debt, while others remain skeptical about its viability and potential impacts.

Unraveling the Crypto Dream with Trump's Bitcoin Reserve

Trump's Pledge and Its Impact on Bitcoin

Crypto bulls are eagerly awaiting Trump's fulfillment of his July pledge to create a national bitcoin stockpile. With his reentry into the White House in January, bitcoin has witnessed a series of record highs, indicating the market's optimism. Scott Mason, a senior policy advisor with expertise in blockchain and crypto, emphasizes the credibility this brings to cryptocurrency. "It's exciting as it gives a boost to the entire crypto space," he said.This potential reserve could potentially help the US offset rising debt issues in the coming years. As bitcoin's finite supply leads to a higher price, amassing a portion now could be a strategic move. Anthony Pompliano, a crypto bull, even called for the US to print $250 billion to acquire more bitcoin.

The BITCOIN Act and Its Blueprint

Under Wyoming Senator Cynthia Lummis' proposed BITCOIN Act, the US aims to accumulate 1 million bitcoins over 20 years, aiming to own approximately 5% of the total supply. This act envisions bitcoin as an asset that could shore up the US dollar as the world reserve currency. "Bitcoin's appreciation since inception makes it a valuable asset for the nation," Lummis explained.However, not everyone is on board. Ananya Kumar, deputy director for the future of money at the Atlantic Council's GeoEconomics Center, questions bitcoin's role as an inflation hedge. She points out that unlike gold, bitcoin tends to track the stock market. If the US invests in a volatile asset like bitcoin, it could have downstream effects on the economy.

Obstacles and Uncertainties

Despite the enthusiasm, there are several obstacles. Crypto billionaire Michael Novogratz highlights the lack of support in Congress. "While the Republicans control the Senate, they don't have 60 seats," he said, questioning the need for a reserve. Mason also emphasizes that creating a reserve through executive action may not be sufficient and requires collaboration between Congress, the Federal Reserve, and the Treasury.There are also lingering questions about public acceptance. Most of the US public does not own bitcoin, and it remains to be seen if they will favor the idea. Kumar warns that converting gold certificates and using the proceeds to buy bitcoin is an inflationary move that could require a rethinking of how the Fed works.

Potential Impact on Bitcoin's Future

Novogratz predicts that the establishment of a reserve could lead to a paradigm shift, sending bitcoin to $500,000. Matt Mena, a crypto research strategist, believes it could soar to $1 million "almost overnight" as other countries rush to follow suit. However, Kumar is more cautious, noting that the importance of bitcoin as an asset for governments is still being debated.In conclusion, while the idea of a bitcoin strategic reserve holds great promise, there are many challenges and uncertainties that need to be addressed. The crypto industry will be closely watching as these developments unfold.
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The Fluctuations of the North Korean Won and Its Impact on Marketplace Behavior
2024-11-25
Over the past year, the North Korean won has experienced a notable decrease in value against the dollar and yuan. This shift has led to a significant transformation in marketplace dynamics, with a growing trend of more transactions being conducted in foreign currencies. Sources within North Korea have shed light on how these exchange rate changes have influenced public behavior and market preferences.

Unraveling the North Korean Won's Exchange Rate Journey and Its Effects

The Decrease in North Korean Won's Value

1: The North Korean won has witnessed a consistent decline in value against major currencies such as the dollar and yuan. This trend has had far-reaching consequences for the North Korean economy. As the value of the won drops, it becomes less attractive for both domestic and international transactions. Merchants and consumers alike are now forced to reassess their currency preferences and adapt to the new economic reality. 2: The decrease in the won's value is not just a statistical phenomenon; it has a tangible impact on people's daily lives. For instance, when purchasing imported goods or engaging in cross-border trade, the higher cost of the won makes foreign currencies more appealing. This has led to a shift in consumer behavior, with more people opting for transactions in dollars or yuan to avoid the losses associated with the depreciating won.

The Rise of Foreign Currency Transactions

1: Sources within North Korea have indicated a significant increase in public demand for foreign currency. Market vendors, in particular, have shown a preference for conducting transactions in either the dollar or yuan. This preference is driven by the diminishing value of the local currency and the need to protect their profits. For example, when the exchange rate between one yuan and the won fluctuates, vendors may adjust their prices accordingly to ensure they do not suffer losses. 2: The rise of foreign currency transactions is not limited to specific regions or industries. It has permeated various aspects of the North Korean economy, including domestic agricultural products. In the past, most agricultural products were bought and sold using the North Korean won. However, with the changing economic landscape, even in rural areas not typically influenced by smuggling, merchants are now preferring transactions in foreign currency. This shift challenges the authorities' efforts to regulate and control the economy.

The Reversal of De-dollarization

1: During the pandemic, North Korea witnessed a de-dollarization trend as trade restrictions were imposed. This led to a decline in foreign currency demand and exchange rates. However, the current rise in exchange rates has reversed this trend, driving a renewed preference for the dollar and yuan. Especially in regions close to the Chinese border, where smuggling previously played a significant role in facilitating the flow of Chinese-made goods, the preference for foreign currency has intensified. 2: The re-dollarization trend is a complex phenomenon that reflects the interplay between various economic factors. It not only affects trade and commerce but also has implications for the North Korean government's ability to manage the economy. As the reliance on foreign currency grows, the authorities face challenges in maintaining control over the domestic currency and implementing fiscal policies.

The Role of Money Changers

1: With the increasing reliance on foreign currency, North Koreans are turning to money changers for currency conversion. This has become a common practice as people seek to facilitate their purchases and navigate the changing economic environment. Money changers play a crucial role in providing the necessary services to meet the demand for foreign currency. 2: The growing usage of the dollar and the corresponding weakening of state control over the economy pose significant challenges for North Korea. Analysts like Son Gwang-su from the KB Financial Group Research Institute have pointed out that attempts to force North Koreans to use the North Korean won are likely to be ineffective in the face of the depreciation of the won. This highlights the need for the North Korean government to address these issues and find ways to manage the economy in a changing global context.
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