Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

The US dollar has weakened since the end of March, leaving it flat from the start of the year. If the dollar moves sideways for the time being, as we expect, then it should lead to a carry trade environment. We identify the best EM currencies for such an environment.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.

The US dollar has weakened since the end of March, leaving it flat from the start of the year. If the dollar moves sideways for the time being, as we expect, then it should lead to a carry trade environment. We identify the best EM currencies for such an environment.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: Which Currencies to Target in a Carry Trade Environment?

Following the recent rally in the Indian rupee, we assess that there is more upside in the currency but suggest targeting a better entry point as uncertainties remain.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.

Following the recent rally in the Indian rupee, we assess that there is more upside in the currency but suggest targeting a better entry point as uncertainties remain.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: Does the Indian Rupee Have More Room to Run?

In this note, we show that EM FX and USD have converged to their long-term trends in REER terms, indicating that they are close to fair valuations. However, there is considerable differentiation within EM, providing attractive relative-value opportunities.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.

In this note, we show that EM FX and USD have converged to their long-term trends in REER terms, indicating that they are close to fair valuations. However, there is considerable differentiation within EM, providing attractive relative-value opportunities.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: EM FX Is Fair in REER Terms but Differentiation Abounds

In this note, we go over the currencies that have outperformed and underperformed in the recent bout of the rally for EM currencies along with the reasoning behind their performances and their outlooks.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.

In this note, we go over the currencies that have outperformed and underperformed in the recent bout of the rally for EM currencies along with the reasoning behind their performances and their outlooks.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 the EM Turnaround

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Olivier Desbarres

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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.

Treasury Secretary Yellen’s comments ten days ago were merely a temporary distraction. Perhaps more surprisingly, at first glance, the release on Wednesday of a much larger-than-expected increase in US CPI-inflation in April has not had much “sticking power”.Core CPI-inflation almost doubled to 3.0% yoy (the high since December 1995) and as a result the Federal Reserve’s “real core” policy rate fell to a multi-decade low of -2.8%. The range-bound 10-year Treasury yield subsequently closed 7bp higher at a 5-week high of 1.69%. The S&amp;P 500 sell-off (-2.1%) and Dollar NEER rally (+0.6%) recorded on 12th May were both the largest since 25th February. However this spike in volatility was modest in the greater scheme of things. More poignantly, these far from dramatic moves have been largely reversed in the past 48 hours. The Dollar NEER is back to within striking distance of the 3-year low recorded on 10th May, in line with our bearish Dollar view. Markets are still only pricing in 15bp of rate hikes by end-2022, versus pricing of 12bp of hikes pre Wednesday’s release of US CPI-inflation data.Markets, rightly in our view, are still not fully convinced that the Federal Reserve will signal, let alone deliver, a tightening of US monetary policy in coming months. The Federal Reserve after all has form, having kept its “real core” policy rate firmly in the red in 2012-2015 (it averaged -1.7%) despite annualised GDP growth averaging a decent 2.2% qoq. By comparison the Federal Reserve’s “real core” policy rate averaged -1.4% between Q2 2020 and Q1 2021 despite GDP growth having averaged only 1.1% qoq. At the very least markets still seemingly have appetite to be long US equities and short Dollars. While not insensitive to valuations and the risk posed by further upside inflation surprises we remain bearish the Dollar near-term.Finally, while much of the debate about Covid-19, vaccination, the re-opening of economies and the bogeyman of inflation has centred on what will happen in 2021, more attention needs to be paid to 2022, in our view.

Treasury Secretary Yellen’s comments ten days ago were merely a temporary distraction. Perhaps more surprisingly, at first glance, the release on Wednesday of a much larger-than-expected increase in US CPI-inflation in April has not had much “sticking power”.Core CPI-inflation almost doubled to 3.0% yoy (the high since December 1995) and as a result the Federal Reserve’s “real core” policy rate fell to a multi-decade low of -2.8%. The range-bound 10-year Treasury yield subsequently closed 7bp higher at a 5-week high of 1.69%. The S&amp;P 500 sell-off (-2.1%) and Dollar NEER rally (+0.6%) recorded on 12th May were both the largest since 25th February. However this spike in volatility was modest in the greater scheme of things. More poignantly, these far from dramatic moves have been largely reversed in the past 48 hours. The Dollar NEER is back to within striking distance of the 3-year low recorded on 10th May, in line with our bearish Dollar view. Markets are still only pricing in 15bp of rate hikes by end-2022, versus pricing of 12bp of hikes pre Wednesday’s release of US CPI-inflation data.Markets, rightly in our view, are still not fully convinced that the Federal Reserve will signal, let alone deliver, a tightening of US monetary policy in coming months. The Federal Reserve after all has form, having kept its “real core” policy rate firmly in the red in 2012-2015 (it averaged -1.7%) despite annualised GDP growth averaging a decent 2.2% qoq. By comparison the Federal Reserve’s “real core” policy rate averaged -1.4% between Q2 2020 and Q1 2021 despite GDP growth having averaged only 1.1% qoq. At the very least markets still seemingly have appetite to be long US equities and short Dollars. While not insensitive to valuations and the risk posed by further upside inflation surprises we remain bearish the Dollar near-term.Finally, while much of the debate about Covid-19, vaccination, the re-opening of economies and the bogeyman of inflation has centred on what will happen in 2021, more attention needs to be paid to 2022, in our view. 

US Markets Playing Along to Fed Tune…for Now

United States

The U.S. Dollar Index(USDX) indicates the general int'l value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. The ICE US computes this by using the rates supplied by some 500 banks. FOR REAL TIME SEE EIS ICEA<GO>.

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FX Dashboard: Which Currencies to Target in a Carry Trade Environment?

If the dollar moves sideways for the time being, as we expect, then it should lead to a carry trade environment. We identify the best EM currencies...

Gautam Jain, PhD, CFA

FX Dashboard: Does the Indian Rupee Have More Room to Run?

Following the recent rally in the Indian rupee, we assess that there is more upside in the currency but suggest targeting a better entry point as...

Gautam Jain, PhD, CFA

FX Dashboard: EM FX Is Fair in REER Terms but Differentiation Abounds

We show that USD and EM FX on aggregate are close to fair valuations in REER terms. However, there is considerable differentiation within EM,...

Gautam Jain, PhD, CFA

FX Dashboard: Winners and Losers in the EM Turnaround

We go over the currencies that have outperformed and underperformed in the recent bout of the rally for EM currencies along with the reasoning...

Gautam Jain, PhD, CFA

US Markets Playing Along to Fed Tune…for Now

Markets shaken but not stirred by US inflation surprise in April. Fed "real" policy rate not that low relative to history and US growth. We...

Olivier Desbarres

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