Tim Condon, Chief Economist at ING, considers PBOC RMB policy risk is the main threat to the risk-on rally but their baseline is that the PBOC continues to manage the fixing “with reference to a basket of currencies.” Key Quotes “A post on the Bank of England’s Bank Underground blog finds that the sensitivity of global – euro, US and UK – financial markets to Grexit risk diminished over time. It measured the sensitivity during three episodes of elevated Grexit risk: December 2009 to July 2010, July 2011 to July 2012 and December 2014 to August 2015. We conjecture that something similar is happening with US Fed risk. If we date the start of the first episode as May 2013 with the Taper Tantrum, we think it’s reasonable that as we head into a fourth year the sensitivity of financial market to Fed risk may be diminishing. Such a case cannot be made for PBOC RMB policy risk. However, the authorities, and PBOC Governor Zhou in particular, have tried to pin down expectations about policy. Their efforts and the release of the January money and credit data in mid-February triggered the current risk-on rally, in our view, and the February economic data sustained it. We consider PBOC RMB policy risk is the main threat to the risk-on rally but our baseline is that the PBOC continues to manage the fixing “with reference to a basket of currencies.” Make hay while the sun shines.” For more information, read our latest forex news.