We continue to believe US$-based investors should hedge a portion of non-US$ currency exposure, particularly that associated with tactical positions in non-US$ assets.* Strategic hedging to mitigate currency volatility may also be appropriate for investors with large allocations (e.g., 20%–25% or higher) to foreign currencies.** We maintain this recommendation even as we regard the US…
European Economics: Core of the Matter Christel Aranda-Hassel, Mirco Bulega, Neville Hill, Sonali Punhani, and Giovanni Zanni, Credit Suisse, February 27, 2015 European inflation has consistently disappointed since mid-2013. Credit Suisse believes the Eurozone is not experiencing deflation given the decline in prices is not broad-based, inflation expectations are picking up, and the European Central Bank…
This chart book provides context on previous US dollar rallies and where the dollar is in the current cycle.
Fasten Your Greek Belts Christel Aranda-Hassel et al., Credit Suisse, February 2, 2015 The rise of Syriza in Greece has turned the market’s attention once again to the possibility of the country leaving the Eurozone. The European economics team at Credit Suisse contends that it is in the best interest of both Greece and Europe…
A number of companies have blamed the strengthening dollar for disappointing fourth quarter and 2015 earnings guidance. With about 65% of S&P 500 companies having reported, headlines that around 75% of firms are beating expectations obscure the reality of forecasts that have steadily been marked lower. Growth for the quarter (year-over-year) is expected to be…
US dollar strength has been building for some time, with the trade-weighted index on an uptrend since mid-2011. However, until the middle of this year the dollar rally had been hesitant, with movements in underlying major currency pairs idiosyncratic. But since early July, the US dollar has strengthened rapidly against a basket of currencies as…
China’s currency recently experienced its sharpest decline since it unpegged from the US dollar nearly nine years ago. China wants a more volatile exchange rate to introduce two-way risk in the currency market, meaning a continued steady rise in its currency is not a foregone conclusion. To help offset slowing investment growth, Chinese authorities may…
“In Search of FX Fair Value” Mark Astley, Ric Deverell, and Bhaveer Shah, Credit Suisse, October 2013 Developing accurate exchange rate forecasts remains an elusive goal for economists and investors alike. Nonetheless, several accepted methods for determining currency fair values exist. Applying Credit Suisse’s own methodology, the bank’s currency strategists note that the U.S. dollar…
As modern portfolios evolve, investors continue to seek new ways to diversify exposures and mitigate volatility. Currency exposure, once thought of exclusively as a risk to be hedged away, is today being embraced by some in mandates designed to generate returns. The form of such a mandate may vary widely, from a discrete, active strategy,…