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Intervention Expected On Overvaluation

ASIA FX

BNY Mellon expects "broad based EM central bank intervention" in 2021, they predict overvaluation in EM FX will force central banks to weaken currencies. They expect the main source of valuation adjustment will be higher inflation and dovish-to-neutral central banks. They point out increased in FX reserves as evidence that intervention is already taking place.

  • "Korea's FX reserves are now $35bn higher at $443bn and Taiwan's are $50bn higher at $530bn. Adding these together implies $365bn of FX buying. For context, this is equivalent to over 80% of the Federal Reserve swap lines provided through the Great Lockdown, which peaked at $449bn in late May 2020."
  • Notably the BoK has already reduced swap lines with the Fed as reserves have grown.


Source: BNY Mellon

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