Has the British Pound Bottomed?
We expect further weakness in the British pound as uncertainty over the economic impact of “Brexit” drives the currency toward GBP/USD 1.15, and an even larger decline cannot be ruled out.
Currency
Has the GBP Bottomed? Not Likely
History implies there is more downside for the pound; we expect the currency to remain volatile and range bound as the long road to Brexit is just starting.
Brexit: Outlier or Harbinger?
Investors should take seriously the prospect that Brexit is different from the crop of recent crises. Given that a substantial (and growing) constituency across EU countries now supports a breakup, the risks of real departures from the Eurozone no longer seem so remote.
From Dollar Dominance to Divergence
Since December 2015, currency markets have become increasingly divergent, with the US dollar simultaneously weakening and strengthening against different currencies. To provide investors with a better understanding of how their base currency is performing, this chart book presents analysis of historical currency momentum, valuation, and fundamentals in five key base currencies: US dollar (USD), British pound (GBP), euro (EUR), Swiss franc (CHF), and Japanese yen (JPY).
Feeling Negative About Sub-Zero Interest Rates
As more countries move from zero interest rate policy (ZIRP) to negative interest rate policy (NIRP) to try to boost growth and conquer deflation, the risks of unintended consequences are rising and investors should tread carefully.
Strategic Currency Hedging Policy: A New Framework
Currency risk is a fact of life for investors, yet few investors have given appropriate thought to setting a strategic hedging policy. The typical approaches have material drawbacks, being either too simplistic or too complex. The new framework we introduce in this paper achieves an attractive balance by seamlessly integrating qualitative portfolio considerations driven by relevant asset class characteristics with a highly simplified yet robust method of incorporating individual currency characteristics. The framework is applicable to a broad set of investors, accommodates lack of precision in measuring currency exposures, separates the question of implementation from policy setting, and helps clearly distinguish between strategic exposures and tactical overlays.
Is the Strong-Dollar Cycle Over?
The US dollar may remain under pressure in the near term, but we doubt the strong-dollar cycle is over.
RMB Risks
While a currency crisis in China can be avoided, much depends on investor psychology and how China manages the capital account.
What’s Next for the US Dollar?
Even given the recent decline in the dollar, we still view the currency as vulnerable in the near term, but it ultimately has more to run before the next depreciation cycle begins.
Assessing the Likelihood of Another EM Currency Crisis
We do not anticipate a systemic emerging markets currency crisis like that of the late 1990s, though EM currency weakness and volatility are likely to persist for the next few years.