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At Any Rate
Global FX: Weeks where decades happen
Aug 9, 2024
This discussion features Arindam Sandilya and Patrick Locke, both Global FX Strategists. They dive into the complexities of the FX carry trade, providing insights into current market fluctuations. The duo analyzes the role of central bank interest rate cuts on currencies like the JPY and CNY. They also examine the U.S. dollar's resilience amid mixed macroeconomic factors and discuss the impacts of volatility shocks on trading strategies, highlighting emerging trends and protective demands in the market.
19:29
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Quick takeaways
- Market volatility has challenged the allure of carry trades, with drawdowns erasing significant year-to-date gains amid shifting central bank policies.
- The Japanese yen is currently viewed as fairly valued, with market focus on upcoming retail flow data that may illuminate consumer behavior trends.
Deep dives
The Impact of Recent Volatility on Carry Trades
Recent market volatility has significantly affected the appeal of carry trades, particularly in the foreign exchange market. Various carry models have experienced drawdowns of about 10%, erasing year-to-date gains and highlighting the inherent risks associated with such strategies. As central banks around the world begin cutting rates, the narrowing of high-yield versus low-yield spreads is further decreasing the attractiveness of carry trading. Market participants are concerned that the risks tied to high beta emerging markets and cyclical currencies may not provide adequate compensation as economic conditions remain uncertain.
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Discover
highlights
Listen to the best highlights from the podcasts you love and dive into the full episode