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Forex market to face big volatility in 2019: BoC trader

2018-12-31 09:19

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International foreign exchange market has high possibility of witnessing big swings in 2019 due to instable economic fundamentals in the world, political uncertainties, and impacts from equity, bond and commodity markets, according to a senior trader with the New York Branch of Bank of China (BoC).

Economic issues like fiscal problems in Italy and other European countries, possible exit of quantitative easing in Europe, deceleration of economic growth in multiple countries and political risks rising from challenged independence of U.S. Federal Reserve, Brexit, change of leadership in Germany, social unrest in France, proposed establishment of united European army and possible U.S. withdrawal from Intermediate-Range Nuclear Forces Treaty would have material impacts on the foreign exchange market, said Liu Zhidan, senior vice president and head of treasury department of the bank branch.

Speaking in an exclusive interview with Xinhua on Friday, Liu said the performance of U.S. dollar index in 2019 would see some changes in comparison with those in 2018 amid double-way movement of equity and bonds markets and other overseas developments.

Liu noted that significant appreciation of U.S. dollars would hurt U.S. economy and overly strong U.S. dollar would not be conductive to reduction of foreign trade deficit.

In the near term, U.S. dollar does not have the same room of rise seen in 2018 given retreat of stock markets, big swings of crude oil prices and the latest economic indicators, according to Liu.

Joining in the trading desk of Bank of China as early as 1994, Liu said the current U.S. dollar index is not very high in the perspective of 10-year cycle.

However, U.S. dollar index could see a new round of growth in 2019 if U.S. economy posted outstanding numbers in consumer expenditure, employment and others and U.S. foreign trade deficit dropped significantly in the year.

Liu expected that the exchange rate of U.S. dollar against Chinese yuan would continue to see two-way movements and yuan does not have high possibility of depreciation against U.S. dollar in 2019 with development trends hinging on economic growth in the two countries.

The exchange rate of Japanese yen and Swiss franc against U.S. dollar would maintain stability without big fluctuations in 2019 as the two currencies remain attractive as safe heavens, according to Liu.

Liu said euro is unlikely to gain strength in 2019 and could see slight depreciation as Brexit, fiscal problems in Italy, rising populism in Europe and diverging fiscal and monetary policy dynamics among European countries weigh on euro.

"If Breixt sees positive developments in March 2019, British pound would gain support. Even Brexit has neutral outcome, British pound also would see pressure to appreciate thanks to technical requirements," said Liu.

Liu suggested individuals and enterprises to hedge risks from interest rates and foreign exchange and stick to conservatism rather than betting against chances.

Statistics show that U.S. dollar index went through roughly single-sided rise and registered 4.64 percent growth so far this year with 52-week high of 97.711.

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