Capital Flows and Currency Wars

The Global Impact of Monetary Policy Adjustments

Next month, the US Federal Reserve is expected to start raising its policy interest rates for the first time since 2006. At the same time, the ECB is likely to be expanding its quantitative easing programme. Not since the ECB was established in 1998 have the monetary policies of the world's two leading central banks headed in opposite directions; such divergence will affect financial markets, governments and corporations worldwide.

Some of the economies most affected will be emerging markets that benefited from large capital inflows as the Fed expanded its balance sheet. Capital is already flowing out of EMs, many of which are also suffering from plunging commodity prices. Intensifying capital flight would put governments under stress from falling currencies and growing current-account deficits.

Join our Client Conference Call on November 17 at 15:00 GMT, where we will address the following issues:

  • The impact of the Fed rates ‘lift-off’ on the US economy, the yield curve and the dollar's exchange rate.
  • The size, duration and composition of the ECB's QE extension, and its likely success in stimulating EU economies.
  • Whether 'currency wars' will fire up if other EM central banks reply in kind to China's depreciation of the renminbi.
  • The outlook for the EM capital outflows and which EMs are most at risk.