Currency volatility has risen in what we think is a sustainable trend, creating more opportunities for alpha creation and risk management. Their flexibility makes currencies ideal investment tools for today’s global macro environment of mixed signals: an uneven recovery, polarized monetary policy, negative rates in Europe, regime change in oil markets and mounting concerns about liquidity. Moreover, in cases such as the dollar’s rally—one of the top investment themes of the past year—currency shifts are driving not only significant revaluations, but also changes in fundamentals.
- In the US, unless you are packing for a trip around the world, the dollar’s surge is not all good news. The reception abroad is more favourable. In our Focus Piece, we discuss repercussions of dollar strength for economic growth and policy, and corporations.
- Despite the strength of the rally so far we see further gains for the dollar over the long term. We are inclined to challenge the “sell in May” thesis with long dollar and selectively pro-risk positioning this quarter.
- Global currency markets are responding to a variety of stimuli beyond monetary policy, including shifting growth expectations and investment flows. Out positioning reflects a range of fundamental as well as idiosyncratic themes.
