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Barclays "envision further EM FX..............>

FOREX: Barclays "envision further EM FX underperformance relative to DM despite
last week's relief rally. The sharp fall in the CNY, which has had spill over
effect on regional currencies, has driven a wider performance gap between the
two groups. While the TRY and MXN have stabilized after elections and not added
to the DM-EM divergence, we think further weakness ahead is likely given policy
uncertainties and external vulnerabilities. Broadly, we believe that the
headwinds that caused the EM sell-off in Q2, such as rising trade
protectionism1, decelerating growth, inflationary concerns from FX weakness and
the competition for global savings from higher returns on US assets, are likely
to persist. In contrast, G10 currencies largely muddle through in our forecasts
in a strong USD environment, although idiosyncratic domestic developments and
differing reactions to risk aversion means differentiated expected performances
within the group."
MNI London Bureau | +44 0203-865-3809 |
MNI London Bureau | +44 0203-865-3809 |

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