Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>In line with my view, the US dollar remains strong, with the invasion of Ukraine by Russia providing additional safe-haven bids and putting pressure on EM currencies. </li>
<li>Among EM currencies, the worst hit are Central European currencies as the war has created headwinds to growth in the region especially due to the spike in energy prices.</li>
<li>Authorities in the eurozone and Central Europe have taken steps to mitigate the impact on their economies but the proximity to the war means that some risk premium will remain.</li>
</ul>


In line with my view, the US dollar remains strong, with the invasion of Ukraine by Russia providing additional safe-haven bids and putting pressure on EM currencies. 
Among EM currencies, the worst hit are Central European currencies as the war has created headwinds to growth in the region especially due to the spike in energy prices.
Authorities in the eurozone and Central Europe have taken steps to mitigate the impact on their economies but the proximity to the war means that some risk premium will remain.


In the Line of Fire – Impact on Central European Currencies from Russia’s Invasion

<ul>
<li>With Russia invading Ukraine, my view of the dollar remaining strong and possibly appreciating further in the near term is playing out.</li>
<li>EM currencies have weathered the spillover from Russia and dollar strengthening well so far, but this may be about to change as their (negative) beta to the dollar has increased.</li>
<li>Beyond the near term, the outlook for the dollar and EM currencies has become hazy given the uncertainty emanating from Russia's invasion and the fallout of the sanctions.</li>
</ul>


With Russia invading Ukraine, my view of the dollar remaining strong and possibly appreciating further in the near term is playing out.
EM currencies have weathered the spillover from Russia and dollar strengthening well so far, but this may be about to change as their (negative) beta to the dollar has increased.
Beyond the near term, the outlook for the dollar and EM currencies has become hazy given the uncertainty emanating from Russia's invasion and the fallout of the sanctions.


Contagion Risks from Russia to Other EM Currencies

<ul>
<li>In an environment marked by uncertainty with regards to the dollar's next move, EM currencies have been stable and LatAm currencies have outperformed Asia and CEEMEA so far this year.</li>
<li>The strong start for LatAm currencies is partly to make up for their underperformance last year and partly supported by their high carry relative to other currencies.</li>
<li>If risk aversion remains low, this trend should persist but given the uncertainty, it is best to be selective and target relative-value trades to take advantage of differences across countries.</li>
</ul>


In an environment marked by uncertainty with regards to the dollar's next move, EM currencies have been stable and LatAm currencies have outperformed Asia and CEEMEA so far this year.
The strong start for LatAm currencies is partly to make up for their underperformance last year and partly supported by their high carry relative to other currencies.
If risk aversion remains low, this trend should persist but given the uncertainty, it is best to be selective and target relative-value trades to take advantage of differences across countries.


Will Latin American Currencies Continue to Outperform Against Asia and CEEMEA?

<ul>
<li>Since the end of last year, the US dollar has persisted around its strongest level in two years on the back of rising US Treasury yields and risk aversion.</li>
<li>I expect the dollar to remain strong at least until the US rates volatility drops meaningfully and the headwinds to US equities, including geopolitical and domestic growth concerns, fade.</li>
<li>Once these risks pass, the dollar – which is expensive in valuation terms – should depreciate as the year progresses, creating a supportive environment for EM currencies.</li>
</ul>


Since the end of last year, the US dollar has persisted around its strongest level in two years on the back of rising US Treasury yields and risk aversion.
I expect the dollar to remain strong at least until the US rates volatility drops meaningfully and the headwinds to US equities, including geopolitical and domestic growth concerns, fade.
Once these risks pass, the dollar – which is expensive in valuation terms – should depreciate as the year progresses, creating a supportive environment for EM currencies.


The US Dollar View and Its Implications for EM Currencies

<ul>
<li>Given the strong performance of several Latin American currencies in recent days, it is fair to ask if these returns are being driven purely by their high carry.</li>
<li>To address this question, we compare the performance of each currency, adjusted by its beta, with its carry, adjusted for its volatility.</li>
<li>While there is some overlap between performance and carry, we find no strong correlation, leading us to conclude that we are currently not in a carry-trade environment.</li>
</ul>


Given the strong performance of several Latin American currencies in recent days, it is fair to ask if these returns are being driven purely by their high carry.
To address this question, we compare the performance of each currency, adjusted by its beta, with its carry, adjusted for its volatility.
While there is some overlap between performance and carry, we find no strong correlation, leading us to conclude that we are currently not in a carry-trade environment.


Is Carry Driving the Returns of EM Currencies?

Peru

The peruvian sol spot is the official currency of the republic of peru. the US dollar is the official currency of the united states of america

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In the Line of Fire – Impact on Central European Currencies from Russia’s Invasion

Russia's invasion has given another leg up to the US dollar, weighing on EM currencies, particularly in Central Europe despite the steps they have...

Gautam Jain, PhD, CFA

Contagion Risks from Russia to Other EM Currencies

EM currencies have weathered the dollar strengthening well so far, but this may be about to change as their (negative) beta to the dollar has...

Gautam Jain, PhD, CFA

Will Latin American Currencies Continue to Outperform Against Asia and CEEMEA?

If risk aversion remains low, LatAm currencies should continue to outperform but given the uncertainty, it is best to target relative-value trades...

Gautam Jain, PhD, CFA

The US Dollar View and Its Implications for EM Currencies

Although the dollar should remain strong in the near term at least until we get clarity on the Fed path, it should depreciate for the remainder of...

Gautam Jain, PhD, CFA

Is Carry Driving the Returns of EM Currencies?

The high carry of a few currencies appears to be one factor behind their recent strong performance, but on further examination, I conclude that we...

Gautam Jain, PhD, CFA

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52-week Range

Market Cap (USDm)

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