Multi FX Strategy – October 2018
The US dollar traded higher at the end of the month following the FED interest rate hike. As a result the dollar was able to reverse its downward trend from earlier in the month. Therefore by the end of the trading month the dollar remain unchanged against it major counterparts. Another contributing factor towards the dollar lift was the capital inflows to the safe-haven assets. Initially caused from concerns over Italy’s budget proposal, investor concerns boosted the appeal of the dollar. This had a negative impact on the common currency. As the trading month ended the Euro practically gave back its earlier gain. This market pattern however, did not negatively impact the multi FX strategy program.
The emerging market currencies however, earned a reprieve in during the month. Most notably, the Turkish Lira continued its ascent following the spike in September. This pattern was a clear reflection on Turkey’s determination to address its macro-economic challenges. The multi FX strategy approach remained favourable to gaining market alpha. Despite mixed results amongst the currency majors, market opportunities were certainly evident. The market absorbed the apparently stagnating Brexit negotiations by selling off the British pound. Similarly in Asia, a combination of trade fears and raising oil prices weighed on the Yen and Yuan.
10 Years On
Last month marks the 10-year anniversary of the Lehman Brothers collapse. The events that unfolded from the 15th of September 2008 pave the path for the Global Financial Crisis. Following widespread distress and liquidity issues in the banking sector sent ripples thought all economies. Central banks engaged in unprecedented purchases of distressed assets to support a failing financial sector. What became know as ‘quantitative easing’ was seen as a tool to bailout banks and financial institutions. The systematic breakdown on ‘Wall Street’ spilled over to ‘Main Street’ as unemployment raced to all-time highs. To stem the crisis and help booster economies, central banks became the lender of the last resort. The FED, ECB, BOJ and PBC expanded their combined balance sheet from $7 trillion to nearly $20 trillion.
In the past 10 years the liquidity injection from these central banks became the catalyst for an equity rally. The extended period of ultra-low interest rates boosted global stocks. Equity indices benefited and a stock market rally was mounted. Meanwhile, developed market yields and credit spreads fell to multidecade. There were even scenarios that markets fell to alltime lows. Financial markets need to adjust to the pre-crisis environments with lowering volatility and uncorrelated price patterns. As opportunities for market beta diminishes, investors are seeking truly diversified alpha. The changing market environment can still provide opportunities for multi FX strategy products.