[ForexNews]

Extreme pessimism has given way to a more balanced view of the world as the sharp decline in global output appears to be over.

Improvement in G4 economic indicators is largely related to confidence.
For positive feedback loops between markets and confidence to continue, sentiment needs to lead to a boost in economic activity. This is baseline scenario.

Decoupling/recoupling debate may resurface, but it is misplaced. Market expects EM growth (ex-EMEA) to be significantly higher (and closer to trend) than G4 growth.

Developed Economies

United States: The Fed wants only some markets back to normal

We believe the Fed will further expand its asset purchases, if necessary, to promote a housing market recovery.

Euro Area: Not as safe as houses

Euro area house prices look set to decline around 6% this year and next, as sharp rises in unemployment and deflated expectations take effect.

UK: There’s no zing in housing

Recent data have hinted at a stabilisation in the housing market. However, we expect further price declines this year and only a meek recovery in 2010.

Japan: Turning with trade
Japanese exports bottomed in February, due largely to demand from Asia, and some leading composite index points to further strength in the months ahead.

Emerging Markets

Emerging Asia: Continued improvement in some economies

In Taiwan, Singapore and Korea, output-related data for April showed signs of improvement.

EMEA: No surprises from rate cuts
Central banks in Hungary, Israel and Poland kept interest rates on hold, albeit for different reasons, but the SARB cut its interest rate 100bp.

Latin America: FX ride’s last call

The week featured milestones for the region’s currencies, with the BRL, most notably, touching the 2 BRL/USD barrier.