FX&MM – Currency Wrap
20 November 2009
This year has been a story of stimulus measures, economic and banking stability followed by increasing risk appetite bolstered by positive economic news. In this period, high beta and cyclical currencies have performed well.
Whilst risk appetite remains supportive, fundamental conditions are now losing momentum. The G10 economic surprise index has recently turned negative following a six month period of positive readings. The fall is broadly based with all bar one of the G10 country groups now negative. Europe remains positive but is falling and with large differences between the countries inside the Euro-zone. As a result, positioning in the high performing currencies is also losing momentum. In recent weeks, short covering in GBP has moved sterling’s trade weighted index up 5% retracing half the losses it accumulated over the summer.
The remainder of the year is likely to see further risk reduction and position squaring. This is likely to provide a boost to the dollar, sterling and the Yen and a sell off in the AUD and even the EURO. However, seasonality suggests the moves will not be dramatic as there has been an average 4.6% appreciation in EURUSD from mid November to year-end since 2000.
Ken Dickson, Investment Director – Foreign Exchange and Money Markets, Standard Life Investments
This article was first published in December/January’s edition of FX&MM Magazine.
