What to Expect From the Dollar, Euro and Yen
The euro has made a major comeback against the greenback thus far in 2016, but the bulk of the move is over, said Solita Marcelli, global head of fixed income, currencies and commodities at J.P. Morgan Private Bank.
"We are going to be seeing more of a range-bound trade than a big move either way," said Marcelli. The only way the euro really takes off against the dollar, she said, is if the Federal Reserve abandons its hiking plans or "the rest of the world outperforms U.S. growth."
The dollar started the year at $1.08 per euro and has since climbed 6% to $1.15 per euro. Marcelli expects the range to be between $1.10 and $1.18 per euro.
The Japanese yen is also stronger, up 11% in 2016 to 106 yen per U.S. dollar. Marcelli said the Japanese currency will likely continue to make gains against the dollar, despite Prime Minister Shinzo Abe's best intentions.
"On the back of the recent price action we might see more policy action coming from the Bank of Japan," said Marcelli. Any new measures will be "challenged by the market," as they have been in recent months. Still, she offered a price target of about 100 yen per dollar in the next few months.
Regarding emerging market currencies and fixed income, Marcelli said she is bullish on the recently issued Argentinian sovereign bonds due to President Mauricio Macri's reforms. The country's $16.5 billion bond sale signified Argentina's return to the capital markets for the first time since 2005.
"They've eased currency restrictions without losing control of the peso, eliminated export taxes, settled the dispute with the holdouts and restarted payments on the country's exchange bonds," said Marcelli.
Finally, Marcelli is finding opportunities in select Brazilian corporate bonds, despite the political instability in the country caused by President Dilma Rousseff's impeachment vote.
