FX – SPOT ON

FX Research • 24 June 2010 • Jyske Markets

An overview …
An overview …
Overall expectations and risk scenarios Page 1

FX outlook
Jyske Bank's FX forecasts Pages 2-3
Publisher:
Jyske Markets The past month in review…
Vestergade 8 -16
The development in the markets over the past month Page 4
DK - 8600 Silkeborg
This month’s special report
Upswing still intact - despite debt turmoil Pages 5-6
Analysts:
FX overview
Helle Varming
+45 89 89 71 05 USD, GBP, CHF, JPY, NOK, SEK, CZK, PLN, HUF, TRY, MXN, BRL, ZAR og CNY Pages 7-23
hv@jyskebank.dk
FX forecasts including consensus estimates
How do Jyske bank’s forecasts deviate from consensus? Pages 24-25
Linda Vestergård
+45 89 89 76 62 Economic forecasts
Linda.vestergaard Jyske Bank’s forecast for other assets traded Page 26
@jyskebank.dk
Overall expectations Hungary with Greece, caused havoc in the for-
After a very volatile month in the foreign- eign-exchange markets.
Kent Bæk Iversen exchange markets in May, volatility in general Because of the sharp focus on the debt prob-
+45 89 89 76 63 abated in June. Panic about the debt crisis in lems in Southern Europe, economic indicators
Kent_iversen
Southern Europe has subsided, but the subject have been of little importance to the foreign-
@jyskebank.dk
is certainly still topical, and it will remain so exchange markets for some time. Now that
for the coming months. The countries in panic about Southern Europe has abated, we
Macroeconomic Southern Europe need to show that they are shall probably see the economic indicators
analyst: actually capable of implementing the pro- gaining more importance – even in a situation
Kim Fæster posed budget cuts. That is a time-consuming of high uncertainty. At such a time it is impor-
+45 89 89 71 67 process, so there is no hope that market par- tant to remember the message that the global
kf@jyskebank.dk ticipants’ concern in that respect will evapo- upswing remains intact - despite the problems
rate in the near future. It adds to uncertainty in Southern Europe (read more in ”Upswing
that there are also countries outside Southern still intact – despite debt turmoil”.
Translation:
Europe which show vulnerability in respect of
Translation Services Risk scenarios
public debt (albeit not to the same extent as
for instance Greece). Therefore focus may well The greatest risk to global growth lies in a
move from Southern Europe to other regions flare-up of the financial crisis in the wake of
at some point. Regular indications that con- the Greek crisis. This might be sparked if one
solidation of the public finances is proceeding or more of the Southern European countries
Read more FX research according to plan (as happened for Greece on were to default or to apply for debt restruc-
report at 17 June), would reduce uncertainty. The pre- ture. In spite of the rescue package, this sce-
www.jyskemarkets.com vailing uncertainty among investors is also nario might still be the case for Greece, and
evident in the fact that the foreign exchange several other Southern European countries are
markets tend to be very sensitive to politi- at risk. Debt restructure would hit the Euro-
cally-motivated announcements. That is what pean banks hard, since they hold large portfo-
happened at the beginning of June when an- lios of government bonds issued by the South-
nouncements by the Hungarian government, ern European countries.
Disclaimer: which had just taken up office, comparing - We hope you will enjoy reading FX - SPOT ON -
Please see the last page

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FX – SPOT ON
FX Research • 24 June 2010 • Jyske Markets

Jyske Bank's FX forecasts

Majors & Scandies
Central-bank Against
rate EUR USD DKK GBP*
Spot 1.00% - 1.23 7.44 1.21
3M 1.00% - 1.20 7.45 1.20
EUR
6M 1.00% - 1.17 7.45 1.22
12M 1.00% - 1.27 7.45 1.25
Spot 0-0.25% 1.23 - 6.06 1.49
3M 0-0.25% 1.20 - 6.21 1.45
USD
6M 0-0.25% 1.17 - 6.37 1.43
12M 0.50% 1.27 - 5.87 1.59
Spot 0.50% 0.83 1.49 9.01 -
3M 0.50% 0.83 1.45 8.98 -
GBP
6M 0.50% 0.82 1.43 9.09 -
12M 1.00% 0.80 1.59 9.31 -
Spot 0.10% 111 90.45 6.70 134.55
3M 0.10% 110 91.67 6.77 132.53
JPY
6M 0.10% 115 98.29 6.48 140.24
12M 0.10% 120 94.49 6.21 150.00
Spot 0-0.75% 1.3601 1.11 5.47 1.65
3M 0-0.75%
CHF
6M 0-0.75% See report: CHF: Still moving upwards
12M 0-1.00%
Spot 2.00% 7.95 6.47 0.94 9.62
3M 2.00% 8.00 6.67 0.93 9.64
NOK
6M 2.25% 7.95 6.79 0.94 9.70
12M 2.75% 7.90 6.22 0.94 9.88
Spot 0.25% 9.53 7.75 0.78 11.54
3M 0.50% 9.50 7.92 0.78 11.45
SEK
6M 1.00% 9.40 8.03 0.79 11.46
12M 1.50% 9.35 7.36 0.80 11.69
Spot 1.05% 7.44 6.06 - 9.01
3M 1.05% 7.45 6.21 - 8.98
DKK
6M 1.05% 7.45 6.37 - 9.09
12M 1.15% 7.45 5.87 - 9.31
Note: All the exchange rates are quoted in accordance with inter-bank conventions except for the column
marked (*) which has GBP as the base currency
Source: Bloomberg/Jyske Bank

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FX – SPOT ON
FX Research • 24 June 2010 • Jyske Markets

Jyske Bank's FX forecasts – cont.

Emerging Markets
Central-bank Against
rate EUR USD DKK GBP*
Spot 0.75% 25.68 20.86 0.29 31.16
3M 0.75% 25.60 21.33 0.29 30.84
CZK
6M 0.75% 25.50 21.79 0.29 31.10
12M 0.75% 25.50 20.08 0.29 31.88
Spot 3.50% 4.08 3.31 1.83 4.95
3M 3.95 3.29 1.89 4.76
PLN
6M 3.90 3.33 1.91 4.76
12M 3.80 2.99 1.96 4.75
Spot 5.25% 280.56 227.89 0.27 340.50
3M 5.25% 280 233 0.27 337.35
HUF
6M 5.25% 270 231 0.28 329.27
12M 5.25% 270 213 0.28 337.50
Spot 7.00% 1.94 1.57 3.84 2.35
3M 7.00% 1.86 1.55 4.01 2.24
TRY
6M 8.00% 1.76 1.50 4.25 2.14
12M 9.50% 1.84 1.45 4.05 2.30
Spot 4.50% 15.59 12.66 0.48 18.92
3M 4.50% 15.30 12.75 0.49 18.43
MXN
6M 4.50% 14.63 12.50 0.51 17.84
12M 14.92 11.75 0.50 18.65
Spot 10.25% 2.20 1.79 3.38 2.67
3M 11.75% 2.20 1.83 3.39 2.65
BRL
6M 12.50% 2.11 1.80 3.54 2.57
12M 2.16 1.70 3.45 2.70
Spot 6.50% 9.29 7.55 0.80 11.28
3M 6.50% 9.20 7.67 0.81 11.1
ZAR
6M 6.50% 9.10 7.78 0.82 11.1
12M 9.00 7.09 0.83 11.3
Spot 5.31% 8.39 6.81 0.89 10.18
3M 8.04 6.70 0.93 9.69
CNY
6M 7.72 6.60 0.96 9.42
12M 8.19 6.45 0.91 10.24
Note: All the exchange rates are quoted in accordance with inter-bank conventions except for the column
marked (*) which has GBP as the base currency
Source: Bloomberg/Jyske Bank

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FX – SPOT ON
FX Research • 24 June 2010 • Jyske Markets

The past month in review

By Helle Varming Swiss franc continues to increase
The interest-rate meeting of the Swiss National
Bank turned out to be a milestone event and our
Pressure on EUR has eased a bit
scenario of a possible shift to a higher level has
Generally the sentiment in the financial markets
not become less likely. The interest rates may
has improved throughout June, and volatilities
have been kept unchanged, but SNB’s
have been on the decrease. However, in mid-
subsequent comment did not contain the well-
June a spokesperson from the Hungarian
known remark that it would 'prevent any excess
government compared Hungary to Greece, and
strengthening of the Swiss franc'. Instead the
therefore nervousness re-emerged and put
SNB said that it would intervene if the
EUR/USD under pressure. The Hungarian
appreciation again becomes a problem in
government was, however, quick at quieting
respect of renewed risk of deflation but stated
down things and therefore the statements never
also that the threat of deflation has generally
triggered any actual panic. The market reactions
been eliminated. These comments offered
revealed that investors are still very jittery, but
decent support to the Swiss franc (which had
despite this, the VIX index has fallen decently
already begun to increase), and so far this
over the last weeks of June. The improving
month the currency has strengthened by almost
sentiment also somewhat eased the pressure on
6% against the euro.
EUR/USD, which at this point in time is more or
less unchanged relative to the level at which it
Little news from Scandinavia
opened at the beginning of the month.
Generally the general market sentiment defined
the direction for the Scandinavian currencies
GBP develops favourably – but debt weighs
this past month, and generally we have seen
In early June, GBP saw some support when it
minor fluctuations for the Norwegian krone as
became clear that the British insurance company
well as the Swedish krona. In mid-June, central
Prudential’s purchase of the US AIG Asia would
bank governor Ingves stated that the Swedish
not materialise after all. The economic situation
economy is on such a strong footing that
of the UK, with a growing budget deficit and a
Sweden has weathered the worst part of the
massive debt burden, did however, put a damper
crisis. This offered support to the Swedish krona
on the potential offered by GBP, as investors
for a short while, but compared to the levels at
feared the rating agencies would downgrade
the beginning of the month both the Norwegian
their credit rating of the UK. However, all other
krone and the Swedish krona are so far at more
things being equal, the early reactions - after the
or less unchanged levels against the euro.
publication of the UK crisis budget on 22 June -
were encouraging and thus GBP found further
support. So far, pound sterling has appreciated
by just above 2% against the euro this month. Chart 1: Selected currencies (1 June
2010 = 100)
JPY at the mercy of the markets
In mid-June, political uncertainty in Japan
resulted in pressure on the yen as Prime Minister
Hatoyama had to resign due to political friction
in Japan. To a great degree, however, the general
market sentiment has governed the
development of the Japanese yen, and even
though the sentiment has improved slightly in
recent days, the uncertainty in the markets has
after all kept the yen at fairly high levels. Hence
EUR/JPY is currently almost 1% lower than at the
beginning of the month.

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FX – SPOT ON
FX Research • 24 June 2010 • Jyske Markets

Upswing still intact - despite debt turmoil

By The Macro Team
The upswing is strengthening and has spread
extensively. There are, however, considerable
differences between the pace of the economic
growth in the various countries. We maintain
our expectations of solid growth until the
autumn; we expect that subsequently the pace
will fall to a level somewhat below the normal
level. But the risk of lower-than-expected
growth has increased. The reasons are risks
threatening the upswing in this early phase,
including turbulence in the financial markets,
fiscal tightening and transition from stimuli-
fuelled growth to consumption- and
investment-fuelled growth. We now expect
that the first interest-rate hikes on the part of
the central banks in the US, the euro zone and
the UK will take place later than we previously
estimated.
Solid growth scenario – with ‘cracks’
Growth is strong in EM Asia and Latin America
and quite solid in the US and Japan. On the
Also the sectors vary considerably. We have
everything from the bubbling manufacturing
industry, a solid service sector to construction
characterised by post-traumatic stress. The
progress in industry is reflected in the global
trade. Trade now increases faster than during
the upswing in the period 2004-07 when we saw
the strongest growth since the early 80s.
Upswing in a new phase
Economic growth is still primarily based on
expansive fiscal and monetary policies as well as
inventory adjustment. However, the most recent
announcement from the G20 countries did show
that a shift is in the offing from an expansive
fiscal policy to stronger focus on tightening in
countries with a risk of unpleasant debt
dynamism. Also, prospects are that inventory
adjustment will offer less support. Therefore we
are nearing the time where consumer spending
and investment must take on the role as growth
engines for the upswing.
GDP growth
106 106
Stiplede linjer er Jyske Banks forventninger
104 104

contrary, the progress in the euro zone is 102 102

somewhat more modest, prospects are that the 100 100

Indeks 100 = 2008:1

euro zone will lag further behind. Also within the 98 98

euro zone, there are big differences in the 96 96

growth pace – from Southern Europe close to 94 94

sliding into recession to Northern Europe with 92 92

growth slightly below the normal level. 90 90

88 88
04 05 06 07 08 09 10 11
Global trade
Euroland Japan USA
170 170
Source: Reuters EcoWin og Jyske Bank
160 160

150 150 Boosting consumer spending

Compared with previous upswings, consumer
140 140
spending in the large industrialised countries
Indeks

130 130 has so far been fairly modest. The reason is

120 120 undoubtedly the problems that consumers have
110 110 had in the form of capital losses, steep declines
in employment and rising unemployment.
100 100

90 90 Yet there are signs that these difficult conditions

01 02 03 04 05 06 07 08 09 are about to turn around. We have seen
Kilde: Reuters EcoWin & CPB indications of slightly increasing house prices
and stabilising unemployment rates in various
places in the world. As the recession has been

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FX – SPOT ON
FX Research • 24 June 2010 • Jyske Markets
extraordinarily long, we may see accumulated
demand in some countries that may boost
consumer spending. We do, however, expect
only a moderate upswing in consumer spending
as there will still be focus on saving and
reduction of debt.
Prospects of increasing investments
Most countries still have ample of available
production capacity. However, quite a few EM
countries are facing capacity problems. The
steeply rising industrial production and
international trade support the need for
corporate investments. And indeed, the
businesses are seeing prospects of rising profits,
and the low interest rates also support
investment. On the other hand, there is still
focus on debt reduction. On the whole, we are
seeing increasing investment.
Higher demands on fiscal policy
Due to heavy budget deficits and steeply rising
national debts, there is focus on tightening of
the fiscal policy. These problems have been
aggravated due to the financial turbulence in
Southern Europe. Fiscal tightening will put a
damper on economic growth, but this will
primarily take place in 2011.
Fiscal policy rather than monetary policy
Fiscal tightening may to some extent replace
some of the interest-rate hikes that the central
banks would otherwise have implemented.
Another thing that may postpone any interest-
rate hikes is the development of inflation. It has
decreased considerably in several industrial
countries and is nearing a disturbingly low level.
Moreover, core inflation will normally fall at the
beginning of an upswing and therefore the
overall inflation may become even lower. This
applies to the US, the euro zone and the UK, and
therefore we now think the first interest-rate
hikes in these countries will be implemented
later than we thought previously.
Highest risks on the downside
The transition from an upswing fuelled by
temporary stimuli to one fuelled by consumer
spending and investments may result in a
slowdown in growth. The most recent financial
turbulence increases the risk of lower growth.
Particularly if it affects the global consumer and
business confidence that is important for
consumer spending and investment. Also, it will
also be a problem if due to the financial turmoil
the markets freeze. The renewed focus on fiscal
sustainability may trigger excessive tightening.
Particularly if at the same time the EM countries
in Asia initiate tightening measures, it may
dampen the economy too much and hence
weaken the global economy. There is, however,
also a risk that growth may be boosted to much
by accumulated consumer demand and need for
investment.
Read more about Jyske Bank’s most recent macro-
economic forecast in the research report ”Upswing
intact - despite debt turmoil”

GDP estimates, %
2008 2009 2010* 2011*
The US 0.4 -2.4 3.2 (3.0) 2.9 (3.0)
Japan -1.2 -5.3 3.3 (1.7) 1.9 (1.7)
The eurozone 0.6 -4.1 1.0 (1.1) 1.4 (1.5)
The UK 0.5 -4.9 1.2 (1.3) 1.7 (1.8)
Sweden -0.6 -5.1 3.2 (1.7) 2.4
Norway 2.0 -1.5 1.9 (2.4) 2.6
Switzerland 1.8 -1.5 2.0 (1.9) 2.0
Emerging Markets
Latin America 4.4 -1.8 5.4 (4.1) 4.1 (3.9)
Central and Eastern 4.2 -5.5 4.1 (3.3) 4.1
Europe
Asia 6.9 5.7 8.4 (7.9) 7.6

* Estimates (from the previous edition of Global Economy in brackets)

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FX – SPOT ON
FX Research • 24 June 2010 • Jyske Markets
In short
By Helle Varming
US dollar - USD
The panic about the debt crisis in Southern Europe
has waned somewhat since our last issue of FX –
Spot On, and the euro has rallied slightly. However,
anxiety is just below the surface, and Spain and the
Spanish financial sector in particular have at-
tracted the interest of market participants for the
past weeks. Despite attempts at denial on the part
of official sources, market participants have been
wondering whether the Spanish government was
preparing to ask for economic assistance. If uncer-
tainty about Spain grows, this may scupper the
young optimism in the financial market and may
put renewed pressure on the euro against the US
dollar. Moreover, anxiety may flare up again when
regular evaluations of the fiscal-policy attempts of
the euro countries become available. The euro has
taken heavy beatings through the first six months
of 2010. Fundamentally, there is is much to indi-
cate that the road ahead may hold rough spots yet
- for the ongoing debt crisis in the euro zone is still
fraught with uncertainty. Other things being equal,
this will tend to maintain pressure against the
single currency. Moreover, the upswing in the euro
zone is lighter than what we are seeing in the rest
of the world, and several countries in Southern
Europe are still threatened by recession. Therefore
we do not find it likely that the European Central
Bank will raise interest rates until June 2011,
whereas the Fed will probably act already in March.
Other things being equal, this indicates that the
dollar will strengthen a little more against the euro
over the coming months – although not at the
speed which we have seen earlier. If the news flow
should suddenly present an overweight of bad
news for the dollar, there is a risk that the dollar
weakening we expect in the latter half of our esti-
mate period will suddenly materialise. A record-
high number of investors are positioned for addi-
tional weakening of the euro against the dollar,
and that increases the risk of a sharp movement if
market focus suddenly moves from the debt-ridden
euro zone to the growing debt burdens across the
Atlantic. However, at present we expect it to be
quite some time until fiscal-policy tightenings and
the public debt burden of the US hit the headlines
in earnest. Still, the spotlight might be directed at
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the issue towards the US mid-term elections in
November.
Estimate - EUR/USD:
3M: 1.20
6M: 1.17
12M: 1.27
Pound Sterling - GBP
The predominant issues with regard to sterling
are still the huge public-sector deficits and the
growing debt burden. The most important task
for David Cameron’s new government is there-
fore to get the public finances back to a sustain-
able level. The long-awaited austerity budget,
which was announced on 22 June, was wel-
comed by the financial markets and helped to
support sterling. The budget is actually quite
ambitious, involving additional savings totalling
1.9% of GDP until 2015 as well as a VAT increase
from 17.5% to 20%, and obviously the govern-
ment wanted to signal that it will work ex-
tremely hard to balance the public finances.
After the announcement, the rating agency Fitch
stated that the budget constitutes a strong
policy statement and an ambitious plan to re-
duce the budget deficit. Moreover, Fitch indi-
cated that the budget will raise confidence in the
UK and emphasise its AAA status. As stated, the
budget offered support to GBP, but so far we
have not seen any actual enthusiasm. The UK
will be in for quite a job and the coming years
will show whether the economic cure in combi-
nation with global growth will suffice to save the
economy in the long term. Moreover, we do not
yet know whether the fiscal tightening and its
dampening effect on economic activity will af-
fect the Bank of England’s monetary policy. We
still expect that GBP will appreciate over the
coming year, but we also think the uncertainty
indicates that progress will take place gradually.
Estimate - EUR/GBP:
3M: 0.83
6M: 0.82
12M: 0.80
FX – SPOT ON
FX Research • 24 June 2010 • Jyske Markets
Swiss franc - CHF
The Swiss franc is still gaining value, and our
scenario of a possible shift to a higher level has
not become less likely after the Swiss National
Bank’s interest-rate meeting in June. The SNB
left interest rates unchanged, but its subsequent
comment did not contain the well-known remark
that it would prevent any excess strengthening
of the Swiss franc. Instead the SNB announced
that it would intervene if the appreciation again
becomes a problem in relation to renewed risk of
deflation, but also stated that the threat of de-
flation has generally disappeared. Other things
being equal, this indicates that at this point in
time, the SNB is not very concerned that a CHF
appreciation may have serious consequences for
the domestic economy, and given these signals
there is every indication that CHF will appreciate
further. So for the time being, the SNB is leaving
interest rates unchanged – due to the uncer-
tainty relating to the debt crisis in Southern
Europe. There is, however, a risk that before long
the SNB will begin to tighten its policy as the
development in the domestic economy in isola-
tion indicates that an interest-rate hike may be
appropriate. If this risk materialises, we see yet
another factor supporting the currency. On the
whole, we find much to indicate a stronger CHF,
and in our view the latest signals from the SNB
support the scenario we set up earlier that the
CHF is shifting to a different trading range. From
the technical point of view, there is support of
the EUR/CHF rate at around 136 for the short
term, but more and more things indicate that we
may see a test of 134.80.
Read more about the risk of a shift to a new level
in the analysis Risk of CHF appreciating further.
Japanese yen - JPY
The combination of a weakening euro and grow-
ing risk aversion in the markets has boosted the
yen for months. In recent weeks fears about a
euro-zone collapse have abated somewhat, and
the VIX index (which indicates the general risk
aversion in the markets) has been falling. Anxi-
ety is still not far away, and the more optimistic
undertone we have seen in the markets lately
still appears fragile. So far, we maintain our
estimate of the 3M EUR/JPY rate at 110. Still, in
our view the anxiety that has characterised the
markets for the past months is merely a correc-
8/29
tion. Accordingly, we expect anxiety to decrease
further. Other things being equal, this will mean
that pressure against the yen will grow as inves-
tor appetite for risky assets increases. Another
thing in favour of a yen weakening over time is
the deflation spectre which acts as a heavy
damper on the Japanese economy. Although the
economic growth rate has been fairly high for
recent quarters, Japan has again had to struggle
with the deflation spectre, and in our view this
means that there are no prospects of interest-
rate hikes in Japan until some time in 2012.
Economies elsewhere in the world are still show-
ing signs of progress, and even if there are no
interest-rate hikes in the pipeline, for instance in
the US, the Fed is likely to begin to tighten its
monetary policy in early 2011. The prospect of a
widening of the yield spread to the US, among
other countries, will add to the pressure against
the yen – particularly towards the end of our
estimate period.
Estimate - EUR/JPY:
3M: 6,77 (110)
6M: 6,48 (115)
12M: 6,21 (120)
Norwegian krone - NOK
Increased anxiety among investors occasioned
by the debt crisis in the euro zone has abun-
dantly demonstrated that NOK is probably still
sensitive to higher risk aversion in the markets.
Overall, NOK is still supported to some extent by
healthy fundamentals and in particular by the
gradual tightening by Norges Bank of its mone-
tary policy. On earlier occasions we have argued
that the potential of NOK would probably be
relatively little – among other things because
the exchange rate is by now back at pre-crisis
levels, and because the focus on NOK is likely to
weaken when the world’s other central banks
begin to raise interest rates. To this should be
added the fact that the economic indicators
were somewhat disappointing at the beginning
of 2010, and that Norges Bank in its latest
monetary-policy report lowered its expectation
of interest rates to a single hike in the second
half of 2010. This bears out our expectation
expressed earlier that the potential of NOK will
be smaller this year than it was in 2009.
Overall, we still expect NOK to be stable to
slightly stronger during our estimate period, but
FX – SPOT ON
FX Research • 24 June 2010 • Jyske Markets
if anxiety in the financial markets intensifies,
NOK may again suffer a blow.
Estimate - EUR/NOK:
3M: 8.00
6M: 7.95
12M: 7.90
Swedish krona - SEK
The krona is still showing signs of weakness
when sentiment in the markets is depressed.
Although panic about the debt crisis in the euro
zone has abated somewhat, there is a risk that
anxiety may flare up now and then – particularly
during the coming months – and put pressure on
SEK. Unless the prevailing unrest in the markets
turns into stark panic, we find that SEK is likely
to find some support in the prospect of an early
interest-rate hike by the Riksbank. GDP growth
proved very high at the beginning of this year,
and the economic growth rates for Q2-Q4 2009
were subject to significant upward revisions.
This caused Jyske Bank’s macro economists to
raise their growth estimate for 2010 from 1.7%
to 3.2%. Indeed, several members of the Riks-
bank have made optimistic announcements
about the prospects of the Swedish economy,
and lately central bank governor Ingves stated
that the economy is on such a strong footing
that Sweden has weathered the worst part of the
crisis.
9/29
Other things being equal, it seems as if the Riks-
bank will begin to tighten its monetary policy,
and in our opinion, the first interest-rate hike
will be made after the monetary-policy meeting
on 1 July. However, there are many points of
uncertainty about the Swedish economy (among
other things the prevailing debt crisis in the euro
zone), and this fact indicates that the Riksbank
will only raise interest rates gradually, taking
the repo rate to 1.75% a year from now. All
things considered, the Swedish economy has
progressed well, and now that anxiety in the
markets seems to have abated somewhat, much
indicates that the value of SEK will continue to
edge up. But the EUR/SEK rate is almost back to
its old trading range from before the outbreak of
the financial crisis, and we therefore do not ex-
pect SEK to strengthen significantly. Still, in view
of the more positive undertone in the markets in
general and the better prospects of growth in
particular, we have decided to raise our estimate
of SEK slightly.
Estimate - EUR/SEK:
3M: 9.50
6M: 9.40
12M: 9.35
FX – SPOT ON
FX Research • 24 June 2010 • Jyske Markets

US dollar - USD
By Helle Varming
Country facts GDP and inflation (y/y)
Per capita GDP (USD, 2008) 47,393
GDP growth (Q1 2010 (q/q)) 0.8%
Inflation (March 2010 (y/y)) 2.0%
Unemployment 9.7%
Central-bank rate 0-0.25%
Current account (% of GDP (2008)) -4.9%
Public debt (% of GDP (2008)) 70.4%
The world’s largest economy and one of the world’s highest GDP per capita. The largest trading partners are (%
of exports): Canada (20.1%), Mexico (11.7%) and China (5.5%). The large industries in the US include oil, steel,
auto and air transport. US GDP per sector: Service (79.6%), Manufacturing industry (19.2%), Agriculture (1.2%).
USD/DKK incl. forecast and forward rates Current account (C/A)
25 1
0 0
-25
-1
-50
Billion USD
-75 -2

% GDP
-100 -3
-125 -4
-150
-5
-175
-200 -6

-225 -7
80 85 90 95 00 05
Current Account Current Account % GDP
Source: Reuters EcoWin

Fundamental valuation Investment case

Based on the purchasing power parity, USD is
slightly undervalued (by about 1.5%) – equilibrium
around 1.21 (EUR/USD) and 6.15 (USD/DKK).
We expect US growth to be markedly higher than
eurozone growth (at least twice as high) in both
2010 and 2011.
Interest-rate hike from the Fed in March 2011. ECB
will wait until June 2011.
The debt crisis in the euro zone and the need for
fiscal-policy tightening may have an adverse effect
on growth in the euro zone.
Price triggers
Relatively better growth data from the US
compared with the euro zone.
Narrowing of credit spread between Europe and
the US in the short end of the yield curve (up to 2Y)
will support USD.
Continuing nervousness that the Greek disease
will spread to e.g. Spain will put pressure on
EUR/strengthen USD until matters will be clarified
The Fed is setting the scene for a normalisation of
the monetary policy (e.g by removing the promise
to keep interest rates low and withdrawing
quantitative easing).
The debt crisis in Southern Europe and the
uncertainty about its consequences for growth will
also burden EUR over the coming months.
Relatively better prospects for the US economy will
support USD.
The yield spread will narrow in favour of USD over
the coming quarters.
USD is still in a technical uptrend.
Risk factors
For the short term: risk of USD weakening since
the strengthening has been solid and the market is
stretched.
Decreasing concern about the situation in
Southern Europe may result in a EUR comeback.
Need for fiscal-policy tightening in the US may
delay the first interest-rate hike.
Any problems selling government bonds in the US
may put USD under pressure.
Doubt about the status of USD as a reserve
currency may enhance the pressure on USD.

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Pound Sterling - GBP

By Helle Varming

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 43,736
GDP growth (Q1 2010 (q/q)) 0.3%
Inflation (March 2010 (y/y)) 3.4%
Unemployment 7.9%
Central-bank rate 0.5%
Current account (% of GDP (2008)) -1.5%
Public debt (% of GDP (2008)) 56.9%

The UK has one of the largest economies in Western Europe and is Europe’ financial centre. The largest trading
partners are (% of exports): The US (13.1%), Germany (11.5%), The Netherlands (7.8%). Banking and insurance
services make up the largest part of GDP: Service (80.4%), Manufacturing industry (18.2%), Agriculture (1.4%).
USD/DKK incl. forecast and forward rates Current account (C/A)

Fundamental valuation Investment case

 GBP is undervalued by approx. 14% based on the
purchasing power parity – equilibrium is approx.
0.73 (EUR/GBP) and 10.19 (GDB/DKK).
 The upturn in the UK is still weak and massive
savings of public budgets will over the coming
years slow down growth further.
 Inflation and inflation anticipations are, however,
rising and this leaves BoE in a dilemma.
Price triggers
 A widening of the yield spread to the euro zone (2Y
and 10Y) will support sterling.
 Economic indicators improve and the upturn gains
momentum.
 An end to the quantitative easing which keeps
market rates artificially down.
 Inflation will be more sustainable and hikes will be
made sooner than expected.
 We expect a stable to slightly stronger GBP over
the coming months. The greatest potential in GBP
is some months ahead.
 The end to quantitative easing and an interest-
rate hike from the BoE in February 2011 (ECB will
wait until June 2011) will support pound sterling.
 A gradual improvement of the economy and
clarification about the new government’s fiscal
line will reduce uncertainty related to sterling and
the risk premium in the long term.
Risk factors
 The UK falls back into recession and interest rates
remain low for a longer period than expected.
 An escalation of the financial crisis may result in a
high risk premium on GBP due to the exposure to
the financial sector in London.
 Renewed uncertainty about the sustainability of
the UK economy may raise doubt whether the UK
will be able to maintain its current credit rating.
 The euro-zone countries succeeded in putting a
damper on the worse uncertainty and EUR is lifted.

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Swiss franc – CHF

By Helle Varming

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 68,433
GDP growth (Q1 2010 (q/q)) 0.4%
Inflation (May 2010 (y/y)) 1.1%
Unemployment 3.8%
Central-bank rate 0-0.75%
Current account (% of GDP (2008)) 2.4%
Public debt (% of GDP (2008)) 42.4%

Switzerland has a wealthy and stable economy with GDP per capita among the highest in the world. The largest
trading partners (% of exports): Germany (33.3%), Italy (11%), France (9.4%). Important industries: machines,
watches, bank and insurance. GDP per sector: Service (73%), Manufacturing industry (23%), Agriculture (4%).
Risk of further CHF appreciation
Our scenario of an upward shift to a new level in the Swiss franc is still relevant (see
the research report Risk of CHF appreciating further from 20 May).
At the June meeting, the Swiss National Bank (SNB) did maintain its rate, but its
subsequent comment did not contain the by now so well-known remark that it would
'prevent any excess strengthening of the Swiss franc'.
Instead the SNB said that it would intervene if the appreciation becomes a problem
again in respect of renewed risk of deflation.
The SNB stated also that the threat of deflation has generally been eliminated.
This indicates that at this point in time, the SNB is not overly concerned that an
appreciation of the franc will have serious consequences for the economy, and with
these signals there is every indication that the franc will appreciate further.
The debt crisis in Southern Europe has so far prompted the SNB to leave interest rates
unchanged but seen in isolation developments in the domestic economy indicate that a
hike may soon be appropriate. When the SNB indicates a tightening of its monetary
policy, it will be another supportive factor for the currency.
Fundamentally, there are many indications of a stronger franc for the period ahead.

Technically, EUR/CHF is in a downtrend with resistance at the moment around 140 and
for the short term around 136-136.50.
It appears increasingly likely that we will see a test of 134.80 in EUR/CHF.
There are thus still many indications of a shift to a new level for the Swiss franc where
the new, strong level is maintained for both the short and long term.
Investors should therefore use corrections towards 140 in EUR/CHF to close Swiss
franc funding.
The new major range in EUR/CHF is now 122-140.

Link to research report in PDF-version including charts

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Japanese yen - JPY

By Helle Varming

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 38,271
GDP growth (Q1 2010 (q/q)) -2.3%
Inflation (April 2010 (y/y)) -1.2%
Unemployment 5.1%
Central-bank rate 0.1%
Current account (% of GDP (2008)) 3.2%
Public debt (% of GDP (2008)) 173.8%

In terms of GDP (PPP), Japan is the world’s third largest economy next to the US and China. The largest trading
partners (% of exports): The US (17.8%), China (16%), South Korea (7.6%). Japan produces: motorcycles,
electronics, ships and chemicals. GDP per sector: Service (66.4%), Manufacturing industry (27.9%), Agriculture
JPY/DKK incl. forecast and forward rates Current account (C/A)

Fundamental valuation Investment case

 Based on purchasing power parity, JPY is
overvalued – equilibrium around 1.48 (EUR/JPY).
 Growth declines – e.g. the effect from the fiscal-
policy easing fades away.
 A number of factors puts a damper on growth,
including the need to consolidate the public
finances, which are in a sorry state.
 Deflation is again a reality in Japan, and in our
view this means that interest-rate hikes will not be
on the agenda until 2012 at the earliest.
Price triggers
 Increased appetite for risky assets.
 A widening of the yield spread between Japan and
the other G10 nations gives renewed focus on the
yen as a funding currency.
 Renewed focus on the possibility of intervention
may put pressure on the yen.
 The BoJ will increase the purchase of government
bonds (extend the quantitative easing).
 Focus on the development in public debt (close to
200% of GDP) creates distrust in JPY.
 We expect a yen weakening for the long term.
 Japan may look forward to a battle against
deflation until end-2011. The BoJ will not tighten
its monetary policy until 2012 at the earliest.
 We expect, however, that the other G10 central
banks will start tightening their monetary policy
early next year (BoE in February and Fed in March
2011).
 A widening of the yield spreads will squeeze the
yen.
Risk factors
 Renewed outbreak of risk aversion due e.g. to the
debt crisis in the euro zone
 The global crisis is slow in progress and the
normalisation of the interest-rate levels in the
other G10 countries is long in coming.
 Technical breach of 108 for EUR/JPY may pave the
way for further strengthening of JPY down towards
100.

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Norwegian krone - NOK

By Helle Varming

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 94,196
GDP growth (Q1 2010 (q/q)) 0.1%
Inflation (March 2010 (y/y)) 2.5%
Unemployment 3.7%
Central-bank rate 2.0%
Current account (% of GDP (2008)) 18.6%
Public debt (% of GDP (2008)) 56.1%

Norway has a solid and wealthy economy and one of the world’s highest per capita GDP. The largest trading
partners are (% of exports): The UK (27%), Germany (12.8%), The Netherlands (10.4%). Main industries: oil, gas,
shipbuilding and chemicals. GDP per sector: Service (76%), Manufacturing industry (21.1%), Agriculture (2.9%).
NOK/DKK incl. forecast and forward rates Current account (C/A)

Fundamental valuation Investment case

 NOK is slightly undervalued with respect to
purchasing power parity – equilibrium 7.80
(EUR/NOK) and 95.4 (NOK/DKK).
 The upswing in Norway has begun.
 Norges Bank has begun the normalisation of the
interest-rate level and has already hiked three
times by a total of 75 bp to 2% since October.
 We expect growth of 1.9% and 2.6% in 2010 and
2011, respectively, and we expect further hikes
totalling 100 bp to 3% at 12-months' term.
Price triggers
 Increased appetite for risky assets will support
NOK.
 Further widening of the yield spread between
Norway and the other G10 nations supports NOK
since the prospect of a positive return supports
the demand for NOK.
 Any rises in the oil price may support NOK.
 The krone has already strengthened somewhat
over the past twelve months.
 We believe in a stable to weak positive
development in NOK over the coming year, as
Norges Bank will raise interest rates further, while
the majority of the other G10 central banks will
remain reluctant.
 NOK has already strengthened by 15% in 2009,
and we therefore assess that the potential will be
more limited in 2010 (2-3% over the year).
Risk factors
 The NOK strengthening may prompt Norges Bank
to postpone the hikes to help the weak
manufacturing industry to get back on track.
 Growth has disappointed in early 2010 and if this
trends continue it may have consequences for
Norges Bank’s future interest-rate path.
 A possible deterioration of the sentiment in the
financial markets may put pressure on NOK.

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Swedish krona - SEK

By Helle Varming

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 52,181
GDP growth (Q1 2010 (q/q)) 1.4%
Inflation (March 2010 (y/y)) 1.2%
Unemployment 8.8%
Central-bank rate 0.3%
Current account (% of GDP (2008)) 7.8%
Public debt (% of GDP (2008)) 46.7%
The Swedish economy has been hit hard by the global crisis but is slowly recovering. The largest trading partners
are (% of exports): Germany (10.4%), Norway (9.5%) Denmark (7.4%). Iron, steel, defence equipment and
automotive are the largest industries. GDP per sector: Service (70.5%), Manufacturing industry (28%),
EUR/SEK incl. forecast and forward rates Current account (C/A)

Fundamental valuation Investment case

 SEK is undervalued based on purchasing power
parity – equilibrium 7.60 (EUR/SEK).
 The upswing will begin in 2010 after the deep
recession.
 Consumers are still optimistic and the industry
and the export are now also improving.
 We expect growth in Sweden of 3.2% and 2.4% in
2010 and 2011, respectively (we believe euro zone
growth will be 1-1.5% for the same period).
 We expect the Riksbanken to begin to raise
interest rates in July 2010 (ECB waits until mid-
2011).
Price triggers
 Increased appetite for risky assets will support
SEK.
 Signals from the Riksbanken of a further
tightening of the monetary policy and an early
‘normalisation’ of the interest-rate level.
 Positive surprises with respect to economic
indicators both globally and locally (including
continuing improvements in exports).
 Riksbanken has indicated that interest rates will
be hiked during the summer or early autumn.
 The strong growth in early 2010 indicates an
interest-rate hike in July.
 We expect that the difference in growth between
Sweden and the euro zone will be in favour of
Sweden.
 The yield spread (2-year swap spread) to the euro
zone will develop in favour of Sweden over the
coming quarters, and this will support the SEK.
Risk factors
 An outbreak of risk aversion in the financial
markets (e.g. based on a government-debt crisis).
 The global upturn loses momentum, and the
Swedish economy is put under renewed pressure.
 Market rates reflect expected hikes of up to 75 bp
in H2. Risk of disappointments if the crisis in the
euro zone escalates.

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Czech koruna - CZK

By Linda Vestergaard

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 20,734
GDP growth (Q4 2009 (q/q)) 0.5%
Inflation (April 2010 (y/y)) 1.2%
Unemployment 8.7%
Central-bank rate 0.8%
Current account (% of GDP (2008)) -3.1%
Public debt (% of GDP (2008)) 36.3%

Compared with the other former communist states, the Czech Republic is the most stable and wealthy economy.
The largest trading partners are (% of exports): Germany (30.3%), Slovakia (6.6%), Russia (6.2%). Primary
industry: auto, metal and machinery. GDP per sector: Service (56.2%), Manufacturing industry (37.6%),
Agriculture (2.3%).
CZK/DKK incl. forecast and forward rates Current account (C/A)
-5 3
2
-10
1
-15 0
-20 -1
Billion CZK

-2

% GDP
-25
-3
-30 -4
-35 -5
-6
-40
-7
-45 -8
96 98 00 02 04 06 08
Current Account Current Account % GDP
Source: Reuters EcoWin

Fundamental valuation Investment case

The Czech Republic was also hit by the global
economic slowdown, but now the Czech economy
is beginning to show signs of growth. The activity
level in the Czech Republic is still relatively low.
The Czech Republic is a very open economy. A large
share of its exports goes to Germany. The upturn
in the Czech Republic will therefore proceed in line
with the upturn in Germany.
In comparison with the rest of the region, the
Czech banking sector is relatively healthy.
Price triggers
The CNB begins lifting its interest rates from the
record-low 0.75% (the prospects are relatively
long).
Focus on the debt problems in the euro zone fades.
The global upswing including the improvement in
German and Czech economic growth continues.
Over the next twelve months, we expect a
practically unchanged CZK against EUR and DKK.
CZK has already recovered considerably after the
strong weakening in 2008/09.
The Czech central bank (CNB) took the market by
surprise with an interest-rate reduction at its
meeting in early May. Together with the current
focus on the debt problems in the euro zone this
may delay the time for interest-rate hikes and
prevent a further strengthening of CZK.
Risk factors
Concern about the debt problems in the euro zone
escalates. The Czech Republic does not show the
same vulnerability with respect to public
indebtedness as for instance Greece but the theme
still tends to have an adverse effect on CZK.
The CNB lowers its interest rates even further.
The global economic upswing is long in coming.

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Polish zloty – PLN

By Linda Vestergaard

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 13858
GDP growth (Q4 2009 (q/q)) 13.13%
Inflation (May 2010 (y/y)) 2.02%
Unemployment (May 2010) 12.00%
Central-bank rate 3.50%
Current account (% of GDP (2008)) -5.09%
Public debt (% of GDP (2008)) 54.52%

Poland has successfully liberalised the economy since 1990. First in line to adopt the euro. Largest export
countries: Germany (24.4%), France (6%), Italy (5.9%). Large industries: machinery, iron, steel, coal, chemicals,
ships. GDP per sector: Service (67.3%), Manufacturing industry (28.1%), Agriculture (4.6%).
EUR/PLN incl. forecast and forward rates Current account (C/A)
-2,5 -1,0
-1,5
-5,0
-2,0
-7,5 -2,5
Billion PLN

-3,0

% GDP
-10,0
-3,5
-12,5 -4,0
-4,5
-15,0
-5,0
-17,5 -5,5
01 02 03 04 05 06 07 08 09
Current Account
Current Account % GDP
Source: Reuters EcoWin

Fundamental valuation Investment case

 As the only country in the region, Poland came
through the global slowdown in growth without
negative growth rates. Notably domestic demand
supported growth. Poland is in a strong
fundamental position for the period ahead.
 Foreign-currency loans make up a lower proportion
than in e.g. Hungary - they constitute a lower risk
for the economy.
 Poland’s weak point is the budget deficit which
was 7.5% of GDP in 2009.
Price triggers
 The government’s privatisation plans for 2010
should support the zloty.
 Focus on debt problems in the euro zone fades.
 The Polish central bank begins to hike rates.
 There is likelihood of positive surprises from this
year’s budget deficit. If so, it would be positive for
the zloty.
 The zloty is still undervalued; we expect the zloty
to appreciate against the euro over the next 12
months.
 The Polish central bank will begin to hike interest
rates before the ECB. This will most likely not
happen until early 2011.
 The degree of focus on the debt problems in parts
of the eurozone may determine the timing and the
speed of a zloty appreciation.
Risk factors
 Zloty is one of the region’s most liquid currencies
and is used to take a negative view on the region.
 If the pressure on the euro continues, there is risk
that the zloty may appreciate against the euro.
 Higher-than-expected budget deficit.
 In April, the Polish central bank intervened for the
first time in ten years against the zloty. Further
intervention is a risk but the new Central-Bank
Governor Belka appears less willing to use the
intervention tool.

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Hungarian forint – HUF

By Linda Vestergaard

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 15477
GDP growth (Q1 2010 (q/q)) 0.88%
Inflation (May 2010 (y/y)) 5.06%
Unemployment (March 2010) 11.80%
Central-bank rate 5.25%
Current account (% of GDP (2008)) -7.19%
Public debt (% of GDP (2008)) 76.94%

Hungary is dependent on exports to the EU. Challenges due to high private indebtedness in foreign currencies.
Largest export countries: Germany (25.4%), Italy (5.2%), Romania (5.1%). Large industries: mining, machinery,
textiles, chemicals. GDP per sector: Service (62.4%), Manufacturing industry (34.3%), Agriculture (3.4%).
EUR/HUF incl. forecast and forward rates Current account (C/A)
50 1
0 0
-50 -1
-100 -2
-150
Billion HUF

-3
-200

% GDP
-4
-250
-5
-300
-350 -6
-400 -7
-450 -8
-500 -9
01 02 03 04 05 06 07 08 09
Current Account
Current Account % GDP
Source: Reuters EcoWin

Fundamental valuation Investment case

A growth upswing is very dependent on rising
export demand (exports account for approx. 80% of
GDP). The Hungarian authorities are therefore not
interested in a much stronger forint. At the other
end is the large share of foreign-currency loans.
At the parliamentary election in April, Fidesz
received 2/3 of the votes. This gives the new
government the possibility to implement reforms
which are necessary to increase the country’s
potential growth rate.
Price triggers
The political development is currently decisive for
the forint. The new government’s future
cooperation with the IMF may be decisive (the
current loan programme expires in October 2010).
The next review of the programme is in July.
After comments from the new government in early
June, the forint weakened. We see the concern as
exaggerated and expect EUR/HUF to return to the
265/280 range that the rate has been trading in
since mid-2009.
The fundamental case should prevent appreciation
of the forint.
The central bank should be prepared to
hike/intervene extraordinarily if EUR/HUF moves
to 300.
Risk factors
The forint is vulnerable to the current negative
focus on the debt problems in the eurozone since
Hungary shows similar vulnerabilities. The
important difference is that Hungary initiated the
consolidation of the public finances in late 2008
and has a better starting point than e.g. Greece.
Weakening of the forint since a large proportion of
the total loans in Hungary is in the Swiss franc or
the euro.
Increasing risk aversion.

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Turkish lira – TRY

By Linda Vestergaard

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 10484
GDP growth (Q4 2009 (q/q)) 2.0%
Inflation (April 2010 (y/y)) 9.10%
Unemployment 14.40%
Central-bank rate 6.50%
Current account (% of GDP (2008)) -5.65%
Public debt (% of GDP (2008)) 39.50%

The Turkish economy is a mix between modern industry and trade and a traditional agricultural sector. The
largest trading partners are (% of exports): Germany (9.8%), UK (6.2%) and China (7.8%). Large industries: textile,
auto and electronics. GDP per sector: Service (45.8%), Manufacturing industry (24.7%), Agriculture (29.5%).
EUR/TRY incl. forecast and forward rates Current account (C/A) – 4 months’ average
2,5 4
3
0,0 2
1
-2,5 0
Billion USD

-1

% GDP
-5,0
-2
-7,5 -3
-4
-10,0 -5
-6
-12,5 -7
90 92 94 96 98 00 02 04 06 08
Current Account
Current Account % GDP
Source: Reuters EcoWin

Fundamental valuation Investment case

The upswing has now gained a firm foothold in
Turkey, and Turkey will report positive growth
again this year. This is supported by recent activity
indicators in Turkey.
A relatively healthy banking sector will support the
upswing.
The government is working on initiatives to secure
fiscal discipline in Turkey. This is positive and will
reduce the risk involved in Turkish assets over the
long term.
Price triggers
The CBRT begins raising its interest rates from the
record-low 6.50%. This happens before the ECB and
the Fed begin raising their interest rates, i.e. the
relative risk premium on the lira increases.
Weaker euro/stronger US dollar.
The global upswing continues – also in Turkey.
General risk appetite.
Seen in relation to before the sale of risky assets in
2008, the lira is still weaker against the euro and
the US dollar – still catch-up potential.
The lira is a dollar-related currency, i.e. our
expectations of a fall in EUR/USD will support the
lira against the euro.
The timing of a lira strengthening will depend on
when the CBRT begins to signal hikes.
Risk factors
The largest risk for the lira against the euro is
currently a sharp appreciation of the euro against
the dollar.
The global economic upswing is long in coming.
Too aggressive and too early withdrawal of
monetary easing from the ECB and the Fed.
Debt problems in the euro zone escalate with a
resultant general re-assessment of country risk.
The CBRT maintains interest rates at the current
6.50% rather than beginning to hike interest rates.

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Mexican peso – MXN

By Kent Bæk Iversen

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 10,217
GDP growth (Q4 2009 (q/q)) 2.1%
Inflation (May 2010 (y/y)) 3.9%
Unemployment 5.4%
Central-bank rate 4.5%
Current account (% of GDP (2008)) -1.5%
Public debt (% of GDP (2008)) 37.7%

Mexico is also called the 51st state of the US since the country is so dependent on exports to the US. Largest
export countries: The US 80.5%, Canada 3.8% and Germany 1.4%. Large industries: food, beverages, tobacco, oil
and chemicals. GDP per sector: Service (65%), Manufacturing industry (31%), Agriculture (4%).
EUR/MXN incl. forecast and forward rates Current account (C/A)
-5 -0,075
-10 -0,100
-15 -0,125
-20 -0,150
Billion MXN

-25 -0,175

% GDP
-30 -0,200
-35 -0,225
-40 -0,250
-45 -0,275
-50 -0,300
03 04 05 06 07 08 09
Current Account
Current Account % GDP
Source: Reuters EcoWin

Fundamental valuation Investment case

We expect growth of 4% in 2010 and 2011 after
the worst recession in 2009 in living memory.
Much depends on developments in the US which
account for about 80% of Mexico’s exports.
Given expected solid US growth in 2010 (3.2%) and
2011 (2.9%), exports will still be supported.
Budding signs that domestic economy will also be
growth engine. Unemployment has fallen from
6.5% to 5.4%.
We expect the peso to strengthen against both
USD and EUR. Still catch-up potential to the levels
before Lehman collapse in the autumn of 2008.
MXN will appreciate the most against EUR in a
scenario with a concurrent fall in EUR/USD.
We see the highest potential at 3-6 months’ term
due to our expectation of EUR/USD in 117.
At 12 months’ term, the potential is more limited
due to our expectation of EUR/USD in 127.

Price triggers Risk factors

MXN has high correlation with USD so continued
USD appreciation will support MXN against EUR.
US growth and employment data.
Mexican growth and inflation data.
If the recovery gains momentum, the country may
be upgraded. S&P downgraded Mexico last year.
Mexico still has an investment-grade rating with a
stable outlook at the three major credit rating
agencies.
USD weakening is a risk factor.
In a scenario with sharply rising risk aversion and
”flight to quality” (like after the Lehman collapse
in 2008), the peso will depreciate against both the
dollar and the euro.
Intervention – purchase of USD against MXN.
Political deadlock in Mexico. The Liberals hold the
presidency and the Social Democrats are biggest
in the parliament so reforms are difficult.

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Brazilian real – BRL

By Kent Bæk Iversen

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 8,626
GDP growth (Q1 2010 (q/q)) 2.7%
Inflation (May 2010 (y/y)) 5.2%
Unemployment 7.3%
Central-bank rate 10.3%
Current account (% of GDP (2008)) -1.7%
Public debt (% of GDP (2008)) 46.8%

South America’s largest economy and a powerful BRIK country. Has since 2002 improved its economy in key
areas. Largest export countries: The US (13.7%), Argentina (8.7%) and China (8.1%). Large industries: textiles,
auto, chemicals and wood. GDP per sector: Service (67.7%), Manufacturing industry (25.8%), Agriculture (6.5 %).
EUR/BRL incl. forecast and forward rates Current account (C/A)
3 2,0

2 1,5

1 1,0

0 0,5
Billion USD

% GDP
-1 0,0

-2 -0,5

-3 -1,0

-4 -1,5

-5 -2,0
04 05 06 07 08 09
Current Account [ma 3]
12 mth. Current Account % GDP

Fundamental valuation Investment case

Brazil has escaped from the crisis; the GDP level
prior to the crisis was reached already in Q4 2009.
Brazil has Latin America’s highest growth rate.
We have just revised up our growth estimate for
2010 to 7.5% and 4.7% for 2011.
Inflation is moving up and the latest statement
showed 5.22% y/y, which is still within the target
of 2.5% – 6.5%.
The country is gaining influence (BRIK country)
and is in focus on the global political scene.
Price triggers
Brazil has a BBB- rating (lowest investment grade).
Is in a strong position for an upgrade.
Presidential election in October. Lula’s line is
expected to be continued, which is positive for BRL.
Fiscal tightening after the presidential election
will be welcomed by the financial markets.
Continued strong domestic growth and fair
exports to the US and China make the country
immune to the eurozone crisis.
The real is supported by an attractive interest-rate
level. Interest rates have been raised twice by 75
bp in 2010 to now 10.25%.
More hikes in store which will support the real.
A less dollar-related investment in Latin America
than MXN and COP.
Against the US dollar, the real is weaker than
before the Lehman collapse in 2008, so still catch
up. Against the euro, the real is weaker so limited
potential.
Risk factors
Intervention – purchase of USD against BRL.
Higher taxes on capital flows. In late 2009, the
government introduced a 2% tax on capital flows.
Presidential election in October. Has not yet given
rise to movements in the market, but keep an eye
on statements on a more relaxed fiscal policy and
whether some candidates question the central
bank’s independence.
Negative news on public indebtedness.

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South African rand – ZAR

By Kent Bæk Iversen

Country facts GDP and inflation (y/y)

Per capita GDP (USD, 2008) 5,685
GDP growth (Q1 2010 (q/q)) 1.1%
Inflation (April 2010 (y/y)) 4.4%
Unemployment 25.2%
Central-bank rate 6.5%
Current account (% of GDP (2008)) -7.1%
Public debt (% of GDP (2008)) 36.0%

Many natural resources and healthy banking sector but after-effects of apartheid – e.g. high unemployment.
Largest export countries: Japan (11.1%), The US (11.1%) and Germany (6.8%). Large industries: mining,
machinery and textiles. GDP per sector: Service (64.4%), Manufacturing industry (32.1%), Agriculture (3.5%).
EUR/ZAR incl. forecast and forward rates Current account (C/A)
5 1
0 0
-5 -1
-10
-2
Billion ZAR

-15
-3

% GDP
-20
-4
-25
-5
-30
-35 -6

-40 -7
-45 -8
96 98 00 02 04 06 08
Current Account Current Account % GDP
Source: Reuters EcoWin

Fundamental valuation Investment case

The FIFA World Cup supports GDP directly in Q2-3.
Then the contribution will be more uncertain, but
we see more gains than risks.
Inflation under control and within target.
The current account is improving markedly.
Too many South Africans live on public aid.
Constitutes risk to public finances but is also
potential if they are educated and employed.
Price triggers
South Africa is currently on negative outlook at
S&P and Fitch. Change of negative outlook will be
positive.
Price rises of commodities (our main scenario).
Development in the US equity market. ZAR has a
high correlation with Dow Jones. Equity price
increases are thus positive for ZAR.
EUR/ZAR has moved down since early 2009. We
expect the trend to continue and a test of 9.00 in
EUR/ZAR within 12 months.
Buy the rand against the euro, e.g. via 10-year
bonds where we expect a yield decline from the
current level of 8.75% to 8.25% at 6 months’ term.
High real interest rate (almost 4%) supports the
rand.
Debt crisis in the eurozone does not spoil the
global growth picture, which is very positive. Asia
is on the rise, which will support the rand due to
the large export of commodities to Asia.
We see EUR/ZAR in 9.00 at 12 months’ term.
Risk factors
South Africa is currently on negative outlook at
S&P and Fitch. A downgrade will be negative.
Intervention from the central bank if ZAR
continues to appreciate.
Falling US equity markets and price declines on
commodities.
Escalation of the problems in the Spanish banking
sector may at worst spread to South Africa’s very
healthy banking sector and cause ZAR to weaken.

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Chinese yuan – CNY

By Linda Vestergaard

Country facts GDP and inflation (y/y)

15
Per capita GDP (USD, 2008) 3,404
GDP growth (Q1 2010 (q/q)) 0.49% 10

Change (y/y)
Inflation (May 2010 (y/y)) 4.53% 5
Unemployment (March 2010) 4.20%
0
Central-bank rate 5.31%
-5
Current account (% of GDP (2008)) 9.43%
jan-2004 okt-2006 jul-2009 apr-2012
Public debt (% of GDP (2008)) 36.26% GDP y/y CPI y/y

China has moved from planned economy to a rapidly growing market economy and is now a key player in the
global economy. Largest export countries: The US (17.7%), Hong Kong (13.3%), Japan (8.1%). Large industries:
mining, consumer discretionaries, machinery. GDP per sector: Manufacturing industry (48.6%), Service (40.5%),
Agriculture (10.9%).
USD/CNY incl. forecast and forward rates Current account (C/A)
450 11

400 10

350 9

300 8
Billion USD

% GDP
250 7

200 6

150 5

100 4

50 3
04 05 06 07 08 09
Current Account
Current Account % GDP

Fundamental valuation Investment case

Until mid-2008, the exchange-rate policy in China
aimed at letting CNY strengthen gradually against
USD. But the global slowdown in growth hit China
too and the Chinese Central Bank (PBoC) changed
its policy. Since mid-2008, CNY has been fairly
stable against USD at 6.83.
The PBoC has already begun to tighten banks’
reserve requirements and on 19 June the PBoC
announced increased flexibility of the yuan.
In principle, the PBoC’s statement of increased
flexibility of the yuan does not vow anything about
future appreciation of the currency.
We expect it will lead to appreciation of the yuan
against the US dollar.
It will not be a revaluation of the yuan but a
gradual appreciation of the yuan against the US
dollar by 5%-6% a year.

Price triggers Risk factors

Continued strong growth indicators from China
although growth is expected to fall slightly.
Particularly the development of China’s exports is
important to yuan appreciation.
Global growth continues to show signs of
improvement.
A longer period with a weakening of the US dollar
may lead to a sharper appreciation than the 5%-6%
against the US dollar a year.
Disappointing Chinese exports will put a damper
on a yuan appreciation.
So will a period of sharp appreciation of the US
dollar. It is not unlikely that such a scenario may
lead to a rise in USD/CNY.
Increasing risk aversion.

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FX forecasts including consensus

Majors & Scandies
Against

EUR Consensus USD Consensus DKK Consensus GBP* Consensus

Spot - - 1.23 - 7.44 - 1.21 -

3M - - 1.20 1.20 7.45 7.45 1.20 1.20
EUR
6M - - 1.17 1.20 7.45 7.45 1.22 1.22
12M - - 1.27 1.18 7.45 7.45 1.25 1.23
Spot 1.23 - - - 6.06 - 1.49 -
3M 1.20 1.20 - - 6.21 6.21 1.45 1.45
USD
6M 1.17 1.20 - - 6.37 6.21 1.43 1.46
12M 1.27 1.18 - - 5.87 6.31 1.59 1.46
Spot 0.83 - 1.49 - 9.01 - - -
3M 0.83 0.83 1.45 1.45 8.98 8.98 - -
GBP
6M 0.82 0.82 1.43 1.46 9.09 9.09 - -
12M 0.80 0.81 1.59 1.46 9.31 9.20 - -
Spot 111 - 90 - 6.70 - 134 -
3M 110 113 92 94 6.77 6.59 133 136
JPY
6M 115 113 98 94 6.48 6.59 140 138
12M 120 116 94 98 6.21 6.42 150 143
Spot 1.36 - 1.11 - 5.47 - 1.65 -
3M - 1.38 - 1.15 - 5.40 - 1.66
CHF
6M - 1.37 - 1.14 - 5.44 - 1.67
12M - 1.38 - 1.17 - 5.40 - 1.70
Spot 7.94 - 6.46 - 0.94 - 9.62 -
3M 8.00 7.81 6.67 6.51 0.93 0.95 9.64 9.41
NOK
6M 7.95 7.70 6.79 6.42 0.94 0.97 9.70 9.39
12M 7.90 7.65 6.22 6.48 0.94 0.97 9.88 9.44
Spot 9.53 - 7.76 - 0.78 - 11.53 -
3M 9.50 9.48 7.92 7.90 0.78 0.79 11.45 11.42
SEK
6M 9.40 9.40 8.03 7.83 0.79 0.79 11.46 11.46
12M 9.35 9.35 7.36 7.92 0.80 0.80 11.69 11.54
Spot 7.44 - 6.06 - - - 9.01 -
3M 7.45 7.45 6.21 6.21 - - 8.98 8.98
DKK
6M 7.45 7.45 6.37 6.21 - - 9.09 9.09
12M 7.45 7.45 5.87 6.31 - - 9.31 9.20
Note: All the exchange rates are quoted in accordance with inter-bank conventions except for the column marked
(*) which has GBP as the base currency. The consensus estimates are from a Bloomberg questionnaire on FX
estimates. Please note: The consensus estimates may deviate from estimates based on cross rate calculations.
Source: Bloomberg/Jyske Bank

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FX forecasts including consensus

Emerging Markets
Against

EUR Consensus USD Consensus DKK Consensus GBP* Consensus

Spot 25.69 - 20.86 - 0.29 - 31.17 -

3M 25.60 25.45 21.33 21.21 0.29 0.29 30.84 30.66
CZK
6M 25.50 25.40 21.79 21.17 0.29 0.29 31.10 30.60
12M 25.50 25.20 20.08 21.36 0.29 0.30 31.88 30.73
Spot 4.07 - 3.31 - 1.83 - 4.94 -
3M 3.95 3.90 3.29 3.25 1.89 1.91 4.76 4.70
PLN
6M 3.90 3.80 3.33 3.17 1.91 1.96 4.76 4.58
12M 3.80 3.78 2.99 3.20 1.96 1.97 4.75 4.61
Spot 280.56 - 227.9 - 0.27 - 340.49 -
3M 280 270 233 225 0.27 0.28 337.35 325
HUF
6M 270 266 231 222 0.28 0.28 329.27 320
12M 270 269 213 228 0.28 0.28 337.50 328
Spot 1.94 - 1.57 - 3.84 - 2.35 -
3M 1.86 1.87 1.55 1.56 4.01 3.98 2.24 2.26
TRY
6M 1.76 1.85 1.50 1.54 4.25 4.03 2.14 2.23
12M 1.84 1.84 1.45 1.56 4.05 4.05 2.30 2.24
Spot 15.59 - 12.66 - 0.48 - 18.92 -
3M 15.30 14.736 12.75 12.28 0.49 0.51 18.43 17.75
MXN
6M 14.63 14.568 12.50 12.14 0.51 0.51 17.84 17.55
12M 14.92 14.396 11.75 12.20 0.50 0.52 18.65 17.56
Spot 2.20 - 1.79 - 3.38 - 2.67 -
3M 2.20 2.2 1.83 1.80 3.39 3.45 2.65 2.60
BRL
6M 2.11 2.1 1.80 1.79 3.54 3.47 2.57 2.59
12M 2.16 2.1 1.70 1.77 3.45 3.57 2.70 2.55
Spot 9.29 - 7.55 - 0.80 - 11.28 -
3M 9.20 9.3 7.67 7.77 0.81 0.80 11.09 11.23
ZAR
6M 9.10 9.4 7.78 7.80 0.82 0.80 11.10 11.28
12M 9.00 9.3 7.09 7.90 0.83 0.80 11.26 11.37
Spot 8.39 - 6.81 - 0.89 - 10.18 -
3M 8.04 8.1 6.70 6.75 0.93 0.92 9.69 9.76
CNY
6M 7.72 8.0 6.60 6.66 0.96 0.93 9.42 9.63
12M 8.19 7.8 6.45 6.60 0.91 0.96 10.24 9.50
Note: All the exchange rates are quoted in accordance with inter-bank conventions except for the column marked
(*) which has GBP as the base currency. The consensus estimates are from a Bloomberg questionnaire on FX
estimates. Please note: The consensus estimates may deviate from estimates based on cross rate calculations.
Source: Bloomberg/Jyske Bank

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Economic forecasts
Yield outlook – government bonds
Central-bank
1-year 2-year 5-year* 10-year 30-year
rate
Current 0.25% 0.27% 0.70% 1.95% 3.15% 4.09%
The US High 0.25% 1.40% 2.10% 3.40% 4.25% 5.25%
Low 0.00% 0.30% 0.75% 2.10% 3.25% 4.00%
Current 1.00% 0.50% 0.57% 1.55% 2.66% 3.37%
The euro zone High 1.00% 1.40% 1.75% 2.65% 3.75% 4.70%
Low 1.00% 0.40% 0.45% 1.40% 2.50% 3.25%
Current 1.05% 0.50% 0.63% 1.20% 2.74% 3.37%
Denmark High 1.15% 1.65% 1.95% 2.50% 3.90% 4.70%
Low 1.05% 0.40% 0.50% 1.15% 2.65% 3.25%
Note: 4-year yields, Denmark
Source: Bloomberg/Jyske Bank

Commodities forecast – average prices

Price 1st Ave. Ave.
Q2 2010 Q3 2010 Q4 2010 Q1 2011
contract 2010 2011
WTI Crude oil (USD/bl) 78 75 80 85 88 78 90
Brent Crude oil (USD/bl) 78 74 79 84 87 77 89
LME Aluminium (USD/tonne) 1959 2100 2000 2000 2000 - -
LME Copper (USD/tonne) 6610 7500 7700 7700 7900 - -
Source: Bloomberg/Jyske Bank

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5-year historical FX rates

Chart 1: EUR/USD Chart 2: EUR/GBP
1,70 1,00

0,95
1,60
0,90
1,50 0,85

1,40 0,80

0,75
1,30
0,70

1,20 0,65

0,60
1,10
jun 05 jun 06 jun 07 jun 08 jun 09
jun 05 jun 06 jun 07 jun 08 jun 09
EUR/GBP
EUR/USD Source: Reuters EcoWin Source: Reuters EcoWin

Chart 3: EUR/CHF Chart 4: EUR/JPY

1,70 180
1,65 170
1,60 160
1,55 150
1,50 140
1,45 130
1,40 120
1,35 110
1,30 100
jun 05 jun 06 jun 07 jun 08 jun 09 jun 05 jun 06 jun 07 jun 08 jun 09
Source: Reuters EcoWin Source: Reuters EcoWin
EUR/CHF EUR/JPY

Chart 5: EUR/NOK Chart 6: EUR/SEK

10,50 12,00

10,00 11,50

9,50 11,00

9,00 10,50

8,50 10,00

8,00 9,50

7,50 9,00

7,00 8,50
jun 05 jun 06 jun 07 jun 08 jun 09 jun 05 jun 06 jun 07 jun 08 jun 09
Source: Reuters EcoWin Source: Reuters EcoWin
EUR/NOK EUR/SEK

Chart 7: EUR/CZK Chart 8: EUR/PLN

33 5,5
32
31 5
30
29
4,5
28
27
26 4
25
24 3,5
23
22 3
jun 05 jun 06 jun 07 jun 08 jun 09 jun 05 jun 06 jun 07 jun 08 jun 09
Source: Reuters EcoWin
EUR/CZK Source: Reuters EcoWin
EUR/PLN

Note: Past performance is not a reliable indicator of future performance

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5-year historical FX rates

Chart 9: EUR/HUF Chart 10: EUR/TRY
340 2,40
2,30
320
2,20
300 2,10
2,00
280
1,90
260 1,80
1,70
240
1,60
220 1,50
jun 05 jun 06 jun 07 jun 08 jun 09 jun 05 jun 06 jun 07 jun 08 jun 09

EUR/HUF Source: Reuters EcoWin EUR/TRY Source: Reuters EcoWin

Chart 11: EUR/MXN Chart 12: EUR/BRL

20 3,6

3,4
18
3,2

16 3

2,8
14 2,6

2,4
12
2,2

10 2
jun 05 jun 06 jun 07 jun 08 jun 09 jun 05 jun 06 jun 07 jun 08 jun 09

EUR/MXN Source: Reuters EcoWin EUR/BRL Source: Reuters EcoWin

Chart 13: EUR/ZAR Chart 14: EUR/CNY

16 11,5
15
11
14
13 10,5
12
10
11
10 9,5

9 9
8
8,5
7
6 8
jun 05 jun 06 jun 07 jun 08 jun 09 jun 05 jun 06 jun 07 jun 08 jun 09

EUR/ZAR Source: Reuters EcoWin EUR/CNY Source: Reuters EcoWin

Note: Past performance is not a reliable indicator of future performance

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Disclaimer & Disclosure

Jyske Bank is supervised by the Danish Financial Supervisory Authority.

The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any
responsibility for the correctness of the material nor any liability for transactions made on the basis of the information
or the estimates of the report. The estimates and recommendations of the research report may be changed without
notice. The report is for the personal use of Jyske Bank's customers and may not be copied.

This is a recommendation and not an investment report.

Conflicts of interest
Jyske Bank has prepared procedures to prevent conflicts of interest. These procedures have been incorporated in the
business procedures covering the research activities of Jyske Markets, a business unit of Jyske Bank.

Jyske Bank's FX, money market and commodity analysts may not hold positions in the instruments for which they
prepare research reports, but Jyske Bank is permitted to hold positions and/or have interests in the instruments for
which such reports are prepared. The analysts receive no payment from persons interested in individual research
reports.

Read more about Jyske Bank's policy on conflicts of interest at www.jyskebank.dk/terms

Risk
FX, money market and/or commodity investment involves risk. Movements in the credit market, the sector and/or the
news flow, etc. regarding the issuer may affect the exchange rate/the interest rate/the price of the commodity. See the
front page of the research report for our view of the risk associated with the currency/interest rate/commodity
investment. The risk factors and/or the sensitivity calculations stated in the report should not be regarded as
exhaustive.

Update of the research report

Analyses, recommendations, and ad hoc publications are not updated. A new publication will instead be published if
and when it is found necessary. Market comments are updated daily.

See the front page for the initial date of publication of the report.
All prices stated are the latest trading prices at the time of the release of the research report, unless otherwise stated.

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