Author: Lior Alkalay

Brexit: The Pound Will Survive, The Euro Will Not

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


Friday, June 24th will be remembered as a Black Day for the British Pound. On that day, investors, shocked by the “leave” vote for Brexit, pushed the Pound off a cliff, toward its worst daily loss since 1985. And yet, despite the Pound being at the eye of the storm after the Brexit vote, it’s not the Pound’s future that investors should fear.

Brexit Impact On The Pound Sterling

The impact Brexit will have on the Pound should be divided into two ranges—short to mid-term and long-term.

In the short to mid-term, it’s undeniable that the Pound will face significant and broad pressures—monetarily, fiscally and economically. The Bank of England will likely need to deploy extra liquidity measures to assure stability in the financial system which, effectively, is monetary easing. From a political standpoint, uncertainty has increased dramatically. On Friday, the UK Prime Minister, David Cameron, resigned, and his “heir apparent” is still unclear. But even more, troubling is the future of Scotland within the United Kingdom. The Scots will be compelled to cast another vote, this time on their willingness to leave the United Kingdom and stay with the European Union. Continue reading "Brexit: The Pound Will Survive, The Euro Will Not" →

Mexican Peso Set To Rally Against EUR And JPY

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


The Mexican economy has been remarkably resilient to weakness in the US. Mexico’s exports to the US amounted to $295 Billion in 2015, a staggering 77% of total Mexican exports. Under such circumstances, one would expect the slowdown in US growth in the first quarter to tank the Mexican economy. Instead, robust growth in consumer spending allowed Mexico to grow at a fair pace of 2.6%, year-on-year. But now, as the tide in the US economy turns, the Mexican manufacturing sector, which suffered during the first quarter, could recover. Mexican GDP growth will move higher, and monetary policy will turn tighter. And the main benefiter? It’s the Mexican peso, which has been undervalued for quite a while.

How US Manufacturing Impacts Mexico

Mexico’s exports to the US are varied, ranging from beef to oil, yet the bulk of its US-destined exports are manufactured goods. Vehicles, vehicle parts, tractors, trucks and computer screens are among the manufactured items, and the list goes on. Transports and Machines are the top two categories and amounted to $186 Billion in 2015. Continue reading "Mexican Peso Set To Rally Against EUR And JPY" →

Sterling Set for Strong Rebound In July

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


Worries over an exit of Britain from the European Union have taken their toll on Sterling. As June 23rd approaches, the day in which Britons will vote to either stay or leave, so does the pressure on the Pound Sterling mount. Media polls are failing to indicate a clear result, and the FX market is getting nervous. And yet, a Brexit seems unlikely and when markets price in the unlikely—even partially—it’s worth taking the other side.

Why A Brexit Still Seems Remote

The risk of a Brexit is mostly economic. Warnings of the financial calamity that could hit the UK have been coming from notable economists from the UK Treasury but the most noteworthy and important warning came from the Bank of England.

The Bank of England Governor, Mark Carney, delivered a stark warning in his latest conference. Carney laid out a rather bleak scenario in case Britons choose to exit the union. The BoE Governor stressed that growth would falter, unemployment would jump and inflation could spin out of control. Continue reading "Sterling Set for Strong Rebound In July" →

Japanese Yen Faces Summer Sale

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


The Yen is vulnerable. Yields on Japanese 2-year sovereign bonds are as low as -0.26%, inflation is persistently low (and seems likely to stay that way for a while) and GDP tilts from contraction to expansion and, in aggregate, barely grows. Currencies such as the US Dollar, the Pound Sterling, and even the Mexican Peso provide plenty of reasons to buy them over the Yen, and yet, the Japanese Yen holds sway. The reason? Global Stocks are underperforming.

Japanese corporations are basically cash machines, hoarding vast amounts of cash that they need to invest. The problem is that Japanese corporations’ default choice has always been buying the highly liquid Japanese sovereign bonds, despite their ridiculously low yields. If market sentiment is upbeat, if stocks perform well, and the global economy seems stable, Japanese corporations are willing to take the risk and store their cash in foreign assets, thus pushing the Yen lower. Continue reading "Japanese Yen Faces Summer Sale" →

Impact Of Fed Rate Hike: June vs. September

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


The Fed dropped a bomb this past Wednesday when it released the latest FOMC minutes—a rate hike in June is possible. Weak US growth in the first quarter of the year and a slowdown now, coupled with nonfarm growth below 200K jobs might have suggested a more tamed statement. Markets responded to the surprise with a selloff in Treasuries and equities and a surge in the Dollar. And yet, despite the explicit mention of June, a rate hike in September seems more likely.

Just like the December 2015 rate hike, the Fed softens the blow by throwing out the possibility of a rate hike before the conditions are actually ripe for one. By the time the Fed actually lifts rates, the money market and the bond markets have adjusted and the shock is minimal. Continue reading "Impact Of Fed Rate Hike: June vs. September" →