Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

After strengthening through early October, the US dollar has turned trendless. I evaluate the change in performance of EM currencies when the dollar was at a peak versus now. Specifically, I go over the regional and country divergences to identify the outperformers and underperformers. I also highlight the currencies where I see the most value.Separately, the attached file is a snapshot of the EM currency market in which I 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 an EM currency index.

After strengthening through early October, the US dollar has turned trendless. I evaluate the change in performance of EM currencies when the dollar was at a peak versus now. Specifically, I go over the regional and country divergences to identify the outperformers and underperformers. I also highlight the currencies where I see the most value.Separately, the attached file is a snapshot of the EM currency market in which I 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 an EM currency index.

FX Dashboard: Updating EM FX Winners and Losers

With the US dollar appreciating on rising risk aversion, it is important to see which EM currencies are more vulnerable and which are less if the dollar strengthening continues. To do so, we look at the systematic risk or beta of each EM currency and how it has evolved. We find that the beta has increased for Central European currencies and Asian currencies with the exception of the Indonesian rupiah and the Indian rupee. It has also increased for the Turkish lira but has dropped for the Mexican peso and the Russian ruble, providing us with a template of which currencies to go long or short.Separately, the attached file is a snapshot of the EM currency market in which 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 an EM currency index.

With the US dollar appreciating on rising risk aversion, it is important to see which EM currencies are more vulnerable and which are less if the dollar strengthening continues. To do so, we look at the systematic risk or beta of each EM currency and how it has evolved. We find that the beta has increased for Central European currencies and Asian currencies with the exception of the Indonesian rupiah and the Indian rupee. It has also increased for the Turkish lira but has dropped for the Mexican peso and the Russian ruble, providing us with a template of which currencies to go long or short.Separately, the attached file is a snapshot of the EM currency market in which 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 an EM currency index.

FX Dashboard: How Have the Sensitivities of EM FX to US Dollar Evolved?

With the dollar strengthening this month, EM currencies have suffered, which is reminiscent of a similar episode in Q1. However, there is greater differentiation this time around, both on a regional basis as well as at the country level. We go over the outliers to identify the reasons they did not react entirely based on their respective betas. If there is no explanation for the deviation, then the idiosyncratic behavior is likely not justified and may represent a trading opportunity.Separately, the attached file is a snapshot of the EM currency market in which 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 an EM currency index.

With the dollar strengthening this month, EM currencies have suffered, which is reminiscent of a similar episode in Q1. However, there is greater differentiation this time around, both on a regional basis as well as at the country level. We go over the outliers to identify the reasons they did not react entirely based on their respective betas. If there is no explanation for the deviation, then the idiosyncratic behavior is likely not justified and may represent a trading opportunity.Separately, the attached file is a snapshot of the EM currency market in which 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 an EM currency index.

FX Dashboard: Winners and Losers in EM FX Amidst Dollar Strengthening

As the US dollar has strengthened this month, it has weighed on EM currencies. Several Asian currencies, in particular, have been among the worst performers, adjusted for their respective betas. Among them, Korean won has underperformed on a combination of low carry and FX interventions. The carry should rise as the central bank has started its tightening cycle, but it is likely to be gradual. Moreover, the recent missile test by North Korea and the lowering of the country's potential growth by the central bank have weighed on the currency. Our view is that the currency is now reflecting these risks and should gradually close its gap with the rest of EM.

As the US dollar has strengthened this month, it has weighed on EM currencies. Several Asian currencies, in particular, have been among the worst performers, adjusted for their respective betas. Among them, Korean won has underperformed on a combination of low carry and FX interventions. The carry should rise as the central bank has started its tightening cycle, but it is likely to be gradual. Moreover, the recent missile test by North Korea and the lowering of the country's potential growth by the central bank have weighed on the currency. Our view is that the currency is now reflecting these risks and should gradually close its gap with the rest of EM.

FX Dashboard: Is Korean Won’s Underperformance Overdone?

With the US dollar and EM currencies on aggregate trading in a range for much of the year, their volatilities have dropped to the lowest level since the start of the pandemic. Since a drop in volatility engenders a carry-trade environment, we test this hypothesis on EM currencies and conclude that indeed currencies with high risk-adjusted carry have been outperforming, and vice versa. A currency that we continue to like from the perspective of improving carry is the Chilean peso.Separately, the attached file is a snapshot of the EM currency market in which 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 an EM currency index.

With the US dollar and EM currencies on aggregate trading in a range for much of the year, their volatilities have dropped to the lowest level since the start of the pandemic. Since a drop in volatility engenders a carry-trade environment, we test this hypothesis on EM currencies and conclude that indeed currencies with high risk-adjusted carry have been outperforming, and vice versa. A currency that we continue to like from the perspective of improving carry is the Chilean peso.Separately, the attached file is a snapshot of the EM currency market in which 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 an EM currency index.

FX Dashboard: Are EM Currencies in a Carry-Trade Environment?

Mexico

The Mexican peso is the official currency of Mexico. 

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FX Dashboard: Updating EM FX Winners and Losers

As the US dollar turns trendless, I go over the regional and country divergences to identify the outperformers and underperformers in EM. I also...

Gautam Jain, PhD, CFA

FX Dashboard: How Have the Sensitivities of EM FX to US Dollar Evolved?

We look at the systematic risk or beta of each EM currency to the US dollar and how it has evolved to identify currencies that are more or less...

Gautam Jain, PhD, CFA

FX Dashboard: Winners and Losers in EM FX Amidst Dollar Strengthening

In the latest bout of dollar strengthening, we go over the outperformers and underperformers among EM currencies to identify potential trading...

Gautam Jain, PhD, CFA

FX Dashboard: Is Korean Won’s Underperformance Overdone?

The Korean won has underperformed on a combination of low carry, FX interventions, and more recently, North Korea's missile test, which should all...

Gautam Jain, PhD, CFA

FX Dashboard: Are EM Currencies in a Carry-Trade Environment?

As the volatilities of the US dollar and EM currencies have dropped, we test the hypothesis and conclude that EM FX is in a carry-trade...

Gautam Jain, PhD, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)