Stay up to date on the latest thoughts from our Currency Management Group
The decision whether to hedge currency exposure is dependent on three main variables: the investor’s risk appetite; the portfolio composition; and the economic environment. For investors, as with any investment decision, it is important that they understand their ability and their willingness to take risk.
Over the past few quarters our forecast that widening trade deficits would weigh on the US dollar has broadly been correct. The prospects for trade-related flows look set to remain a challenge for the dollar. By contrast, the growth outlook for the US economy is bright.
We believe the rollout of a vaccine is likely to have the greatest influence on financial markets in the first quarter of 2021. Periods of growth recovery are historically associated with a weaker US dollar, particularly vs. cyclical and emerging market currencies (EMFX). With favourable valuations, flows into EMFX could be significant.
The renminbi has led the positive performance of Asian currencies against the US dollar over the past quarter amid a tenuous recovery across global emerging market currencies.
The Canadian dollar has been a laggard amongst developed market currencies this year, falling sharply against a strong dollar as the market searched for safe assets at the peak of the COVID crisis.
We look at some of the potential options for investors to determine an appropriate hedging strategy and mitigate the impact of currency movements.
The Japanese yen has been a popular currency to own during over the past few months by virtue of its negative correlation with equities.
The increased level of interest rate volatility in the currency swap market has received considerable attention from market participants.
Our long standing view on the pound has been that it is not as cheap as widely perceived despite the fall related to Brexit.
Currency markets have experienced some of the volatility and unusual pricing dislocations seen in broader asset markets in recent weeks.
A couple of key trends in capital flows suggest the role of euro funding is growing, and we outline the near-term implications for currency markets.
Since the start of 2013, consensus forecasts for the Swedish krona and Norwegian krone have been persistently bullish and persistently wrong.
With current general election polling consistent with a victory for the Conservative Party, the pound has outperformed over the last few months.
We believe the US dollar is currently experiencing a rare structural change in valuation level that means it may be far less overvalued than is widely believed.
We believe a well-designed, tailored approach to using ESG factors for active currency management can be a source of added value for clients over the long term.
The renminbi’s weakness has become more idiosyncratic and closely linked to Chinese policy decisions rather than reflecting broader regional trends.
The probability of US unilateral intervention has risen from a tail scenario to one of low-to-moderate probability.
How the dollar trades following the cut in rates, depends to a large extent on whether the rate cuts are mid cycle or recessionary.