GBP – It’s darkest before the dawn (pg 3)
We recognise that the UK is in a worse situation than the US with a higher debt hangover to work off, but
that is not news. In fact, the UK CDS spread is already much higher than in the US and sterling against
the dollar has fallen by roughly a third. In addition, on historical measures, sterling has already underperformed.
On a liquidity basis sterling has under-performed; and compared with previous US downturns
GBP it has also under-performed. In short GBP has already been de-rated. It would seem to us that from a
rational point of view that, unless something out of the ordinary happens, a lot of bad news is already
priced into sterling. Nevertheless in our eyes there is scope for downside surprise elsewhere and this gives
GBP scope to show signs of a recovery – particularly against the USD.
The helicopters are out (pg 7)
The £50bn Asset Purchase Facility (APF) was established to buy corporate bonds, commercial paper and
CGS debt, financed by the issuance of T-bills of central bank money (sterilised). Now the fund is £75bn,
which will be financed entirely by newly created central bank money (resulting in an unsterilised increase
in the money supply).
Emerging markets FX: divergent intervention policies (pg 9)
Private capital and trade flows are declining, and in response to this, what policy makers say or do will
have a pronounced impact on their currencies. Moves towards a more aggressive interventionist approach
are becoming common and need to be monitored. Some policymakers appear to be intervening to stabilise
their domestic currencies while others seem to be promoting currency weakness. We explore the
differences among policymakers in emerging markets.
NOK....probably the best currency in the world (pg 18)
The world is in total flux and we have released our new forecasts for the global economy. Based on these
depressing numbers, we look at who comes out the best amongst the G10. Norway wins. The JPY and the
CHF are both losing their safe haven status and the best safe haven currency is the NOK. The NOK is our
preferred G10 currency where we expect a sustained appreciation over the next 18 months.
SEK weakness here to stay (pg 23)
The Swedish krona has fallen by nearly 20% on a trade weighted basis since last September, and recently
reached record low levels, well below the weakest levels seen after the tech bubble burst in 2001. As a
small open economy, Sweden is particularly vulnerable to the dramatic slowdown in global growth, and
this no doubt accounts for part of its weakness. In addition Swedish banks are heavily exposed to the
Baltic States which are experiencing severe problems and fears of deflation have stimulated discussion of
unconventional monetary policies including an explicit policy of driving the currency down in order to
target the price level.

Dollar Bloc (pg 28)
Canada – Pillars of support collapsing
USD-CAD’s push to new 2009 highs in early March is not only consistent with our long-held view that
the currency pair will move higher in H1 of this year, but more importantly reflects the ongoing
deterioration in Canada’s fundamental backdrop.
Australia – defying the gloom for now
The Australian authorities have been proactive and we are increasingly looking at the AUD through rose
tinted glasses. This compares to the NZD where our worries continue.
New Zealand – Weariness weighs down the NZD
New Zealand has been in recession since the first quarter of 2008 and is still not showing signs of recovery.
Darkening the picture further, the first week of March saw NZD fall to a new six year low as negative
sentiment weighs it down. Pushing interest rates below rates in Australia may prove dangerous for the NZD.