Currencies

There is a 50:50 chance of experiencing a major deflationary shock in the next two years, and an even greater likelihood on a longer timeframe. The good news is that several assets provide a good insurance against this risk, and that this insurance is now cheap. Plus we highlight a compelling commodity pair-trade.

As the Fed meets today, we explain what it did wrong in 1970, 1974, and 1980 that prevented inflation from being exorcised, and the lessons for 2023-24. Plus, we identify a currency cross that could rebound in the next year.

The risk-reward of the US dollar is currently positive. If a US recession is not imminent, then US bond yields will move higher, thus supporting the greenback. If the US enters a recession soon, the US dollar will benefit because it is counter-cyclical. Besides, the US dollar has not been as weak as the DXY index suggests.

EUR/USD is trying to breach above 1.10. What is the balance of positive versus negative factors that would allow the euro to breakout?

Yen bulls need patience. The near-term narrative remains bearish on the back of interest-rate differentials. Longer term, it is the most attractive currency the G10, on valuation grounds.

Yen bulls need patience. The near-term narrative remains bearish on the back of interest-rate differentials. Longer term, it is the most attractive currency the G10, on valuation grounds.

Inflation is hot, but inflation expectations are not. We explain the answer to this apparent puzzle and discuss the investment implications. Plus we identify two commodities that are at imminent risk of reversal.