Founder

Olivier Desbarres

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4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

FX & Rates

The British Chancellor of the Exchequer Rishi Sunak will on 3rd March, at around 12.30 UK time, present to the House of Commons the annual budget for the United Kingdom. The ruling Conservative Party has a significant working majority of 87 seats in the lower house of parliament and we expect the budget to pass pretty smoothly. While revenue and spending measures are very important for UK households and companies and the economy’s medium-term direction, our historical analysis suggests that that financial markets’ short-term reaction to the annual budget announcement is muted. In the past six budgets the Sterling NEER has on average depreciated about 0.1% on budget day while the FTSE 100 has closed up about 0.3%. In the five trading sessions following the 2015-2018 budgets, the Sterling NEER was on average unchanged while the FTSE 100 on average only gained about 0.45%, with little variability. The only expectation to this pattern was the March 2020 budget but acute global risk aversion, rather than the UK budget, drove Sterling and the FTSE 100 weaker in our view. If anything the reaction of short-end Gilts to previous budget announcements has been even more tepid.We see two inter-connected reasons for this. First, British governments in recent years have “pre-announced” most of their tax and spend measures to mainstream media, even if they often hold back a few vote-winning fiscal surprises to unveil on budget day. Second, budget announcements contain such a wide array of tax and spend measures that gauging their short, medium and long-run impact on the economy, Sterling, Gilts or equity markets remains an exercise in faith as much as rigorous analysis.This year’s “two-pronged transitional” budget will be no different, in our view. Policies largely outside of the Chancellor’s remit, including the pace of UK vaccination, will likely continue to be the main driver of domestic financial markets, including Sterling.However, expect Sunak to confirm both a (temporary) extension of Covid-19 related fiscal measures to support the economy during lockdown as well as modest tax hikes regardless of the government’s very low financing costs, in line with our September forecast.

The British Chancellor of the Exchequer Rishi Sunak will on 3rd March, at around 12.30 UK time, present to the House of Commons the annual budget for the United Kingdom. The ruling Conservative Party has a significant working majority of 87 seats in the lower house of parliament and we expect the budget to pass pretty smoothly. While revenue and spending measures are very important for UK households and companies and the economy’s medium-term direction, our historical analysis suggests that that financial markets’ short-term reaction to the annual budget announcement is muted. In the past six budgets the Sterling NEER has on average depreciated about 0.1% on budget day while the FTSE 100 has closed up about 0.3%. In the five trading sessions following the 2015-2018 budgets, the Sterling NEER was on average unchanged while the FTSE 100 on average only gained about 0.45%, with little variability. The only expectation to this pattern was the March 2020 budget but acute global risk aversion, rather than the UK budget, drove Sterling and the FTSE 100 weaker in our view. If anything the reaction of short-end Gilts to previous budget announcements has been even more tepid.We see two inter-connected reasons for this. First, British governments in recent years have “pre-announced” most of their tax and spend measures to mainstream media, even if they often hold back a few vote-winning fiscal surprises to unveil on budget day. Second, budget announcements contain such a wide array of tax and spend measures that gauging their short, medium and long-run impact on the economy, Sterling, Gilts or equity markets remains an exercise in faith as much as rigorous analysis.This year’s “two-pronged transitional” budget will be no different, in our view. Policies largely outside of the Chancellor’s remit, including the pace of UK vaccination, will likely continue to be the main driver of domestic financial markets, including Sterling.However, expect Sunak to confirm both a (temporary) extension of Covid-19 related fiscal measures to support the economy during lockdown as well as modest tax hikes regardless of the government’s very low financing costs, in line with our September forecast.

Transitional UK Budget Unlikely to Rattle Markets

Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

In this note, we discuss the reasons behind the stability in EM currencies and whether it can continue.The attached file is a snapshot of EM currency market, which we produce daily, and where we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to the broad market. The analysis, therefore, is not a forecasting tool but to be used for identifying dislocations, which we loosely define as price moves that cannot be justified by fundamentals.

In this note, we discuss the reasons behind the stability in EM currencies and whether it can continue.The attached file is a snapshot of EM currency market, which we produce daily, and where we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to the broad market. The analysis, therefore, is not a forecasting tool but to be used for identifying dislocations, which we loosely define as price moves that cannot be justified by fundamentals.

FX Dashboard: EM FX Volatility Remains Low

In this note, we discuss the reasons behind the recent lag of the Colombian peso and argue that it may continue to underperform in the near term.The attached file is a snapshot of EM currency market, which we produce daily, and where we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to the broad market. The analysis, therefore, is not a forecasting tool but to be used for identifying dislocations, which we loosely define as price moves that cannot be justified by fundamentals.

In this note, we discuss the reasons behind the recent lag of the Colombian peso and argue that it may continue to underperform in the near term.The attached file is a snapshot of EM currency market, which we produce daily, and where we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to the broad market. The analysis, therefore, is not a forecasting tool but to be used for identifying dislocations, which we loosely define as price moves that cannot be justified by fundamentals.

FX Dashboard: Colombian Peso to Continue Underperforming

In the past nine weeks major currencies and global equity markets have traded broadly in line with our expectations. The US Dollar has traded in a very narrow range, confounding consistently bearish market expectations. Similarly, most emerging Asian currencies have barely moved, pointing to the ability and willingness of Asian central bank to intervene in FX markets in a bid to manage both the volatility and directionality of their currencies. Conversely, emerging currencies, particularly in Latin America, have been prone to sharp pull-backs.Stretched currency valuations and still very weak global economic growth in January – which tallies with our forecast – has likely been a driver of currencies’ performance. In the past five weeks the inverse correlation between the Dollar and S&amp;P 500 and between the Dollar and the steepness of the US Treasury yield curve has broken down.Our take is that the broad-based diversification out of Dollars, driven by buoyant global risk appetite and market concerns about the Dollar’s real carry, has stalled and slightly reversed. We suspect that central banks and sovereign wealth funds may have re-focussed on domestic factors, which has in turn led to a rotation between other reserve currencies. This includes a rotation out of Euros and move into Sterling and a rotation out of the safe haven Swiss Franc and in particular Japanese Yen into commodity reserve currencies – namely the Canadian and Australian Dollars and Norwegian Krone – and New Zealand Dollar. These four currencies’ NEERs are now near the top end of their three-month ranges. In each case specific drivers have been in play, “in our view. Our analysis suggests that the Norwegian Krone may still be “cheap” relative to the current price of Brent crude oil.Figure 8 suggests that a rotation in and out of other (EM) currencies which were 1-2 months ago trading at the extremes of their ranges may have also taken place.The Dollar NEER has weakened about 0.9% since 4th February and its inverse correlation with the S&amp;P 500 (+1.2%) has re-established itself. We think this is a short-term correction, with another prolonged Dollar downtrend still a couple of months away.

In the past nine weeks major currencies and global equity markets have traded broadly in line with our expectations. The US Dollar has traded in a very narrow range, confounding consistently bearish market expectations. Similarly, most emerging Asian currencies have barely moved, pointing to the ability and willingness of Asian central bank to intervene in FX markets in a bid to manage both the volatility and directionality of their currencies. Conversely, emerging currencies, particularly in Latin America, have been prone to sharp pull-backs.Stretched currency valuations and still very weak global economic growth in January – which tallies with our forecast – has likely been a driver of currencies’ performance. In the past five weeks the inverse correlation between the Dollar and S&amp;P 500 and between the Dollar and the steepness of the US Treasury yield curve has broken down.Our take is that the broad-based diversification out of Dollars, driven by buoyant global risk appetite and market concerns about the Dollar’s real carry, has stalled and slightly reversed. We suspect that central banks and sovereign wealth funds may have re-focussed on domestic factors, which has in turn led to a rotation between other reserve currencies. This includes a rotation out of Euros and move into Sterling and a rotation out of the safe haven Swiss Franc and in particular Japanese Yen into commodity reserve currencies – namely the Canadian and Australian Dollars and Norwegian Krone – and New Zealand Dollar. These four currencies’ NEERs are now near the top end of their three-month ranges. In each case specific drivers have been in play, “in our view. Our analysis suggests that the Norwegian Krone may still be “cheap” relative to the current price of Brent crude oil.Figure 8 suggests that a rotation in and out of other (EM) currencies which were 1-2 months ago trading at the extremes of their ranges may have also taken place.The Dollar NEER has weakened about 0.9% since 4th February and its inverse correlation with the S&amp;P 500 (+1.2%) has re-established itself. We think this is a short-term correction, with another prolonged Dollar downtrend still a couple of months away.

Dollar’s Recent Weakness – Blip, Not New Trend

This report updates the monthly seasonal patterns of 31 major Nominal Effective Exchange Rates(NEERs) going back to January 2010, using over two million daily data points with trade-weights derived from the<a href="https://www.bis.org/statistics/eer.htm" target="_blank" rel="noopener">BIS</a> (April 2019) and national central banks (see <a href="https://gallery.mailchimp.com/948838a86ce72ab6d8019a39d/files/15f4d8a9-56a4-46fd-9d78-607e5fd523e6/4X_Global_Research_Nominal_Effective_Exchange_Rates_Monthly_seasonal_patterns.pdf" target="_blank" rel="noopener">Nominal Effective Exchange Rates: Monthly seasonal patterns</a>, 10th January 2019). A number of factors can drive currency seasonality, including underlying seasonal patterns in balance of payment flows, the timing of public holidays and market liquidity. Identifying monthly seasonal patterns and why they may break down (significant changes in central bank or government policy, market positioning, macro data surprises and unexpected domestic events) can thus potentially augment investment returns and generate alpha.Unsurprisingly the Covid-19 pandemic – a once-in-a-lifetime “black swan” event – and accompanying measures such as national lockdowns severely disrupted typical monthly seasonal currency patterns in 2020, particularly in March and June (the trough and peak in global risk appetite) but also in Q4, with a few exceptions (see <a href="https://www.smartkarma.com/insights/monthly-currency-seasonality-down-and-out" target="_blank" rel="noopener">Monthly currency seasonality: Down and out?</a>, 4th January 2021). A number of emerging and developed market currencies continued to deviate from their 2010-2019 historical patterns in January 2021. In particular the “normally” strong Brazilian Real and to a lesser extent Colombian Peso and Polish Zloty depreciated. The Swiss Franc, contrary to history and in line with our forecast, also weakened slightly. The South African Rand depreciated 2.1%, five times as much as its 11-year historical average.Conversely the “normally” weak Turkish Lira was the outperformer, with the NEER appreciating nearly 4%. Sterling, the Australian Dollar and Norwegian Krone also outperformed in January relative to their historical seasonal patterns. However, and while early days, about 17 currencies, including the Dollar, Euro, Kiwi Dollar, Mexican Peso and most Asian currencies performed in line with their historical seasonality.Based on 2010-19 data Thai Baht, Norwegian Krone, Hungarian Forint and Polish Zloty were strongest currencies in the month of February while Korean Won was the weakest.

This report updates the monthly seasonal patterns of 31 major Nominal Effective Exchange Rates(NEERs) going back to January 2010, using over two million daily data points with trade-weights derived from theBIS (April 2019) and national central banks (see Nominal Effective Exchange Rates: Monthly seasonal patterns, 10th January 2019). A number of factors can drive currency seasonality, including underlying seasonal patterns in balance of payment flows, the timing of public holidays and market liquidity. Identifying monthly seasonal patterns and why they may break down (significant changes in central bank or government policy, market positioning, macro data surprises and unexpected domestic events) can thus potentially augment investment returns and generate alpha.Unsurprisingly the Covid-19 pandemic – a once-in-a-lifetime “black swan” event – and accompanying measures such as national lockdowns severely disrupted typical monthly seasonal currency patterns in 2020, particularly in March and June (the trough and peak in global risk appetite) but also in Q4, with a few exceptions (see Monthly currency seasonality: Down and out?, 4th January 2021). A number of emerging and developed market currencies continued to deviate from their 2010-2019 historical patterns in January 2021. In particular the “normally” strong Brazilian Real and to a lesser extent Colombian Peso and Polish Zloty depreciated. The Swiss Franc, contrary to history and in line with our forecast, also weakened slightly. The South African Rand depreciated 2.1%, five times as much as its 11-year historical average.Conversely the “normally” weak Turkish Lira was the outperformer, with the NEER appreciating nearly 4%. Sterling, the Australian Dollar and Norwegian Krone also outperformed in January relative to their historical seasonal patterns. However, and while early days, about 17 currencies, including the Dollar, Euro, Kiwi Dollar, Mexican Peso and most Asian currencies performed in line with their historical seasonality.Based on 2010-19 data Thai Baht, Norwegian Krone, Hungarian Forint and Polish Zloty were strongest currencies in the month of February while Korean Won was the weakest.

United Kingdom

The British Pound Sterling is the official currency of The United Kingdom. 

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Transitional UK Budget Unlikely to Rattle Markets

Sunak will on 3 March present annual UK budget. Media will be tabulating winners & losers. But history suggests that impact of two-pronged...

Olivier Desbarres

FX Dashboard: EM FX Volatility Remains Low

Attached is our daily FX Dashboard that helps identify dislocations among EM currencies. In this note, we discuss the reasons behind the stability...

Gautam Jain, PhD, CFA

FX Dashboard: Colombian Peso to Continue Underperforming

Attached is our daily FX Dashboard that helps identify dislocations among EM currencies. In this note, we discuss Colombian peso's recent lag and...

Gautam Jain, PhD, CFA

Dollar’s Recent Weakness – Blip, Not New Trend

In past 2 months range-bound USD and Asian currencies, pull-back prone EM currencies and buoyant equities have performed in line with our forecast....

Olivier Desbarres

Currency Seasonality’s Slow Comeback?

Identifying currencies' monthly seasonal patterns and why they may break down can potentially generate alpha. Seasonal patterns broke down in 2020...

Olivier Desbarres

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