Founder

Olivier Desbarres

Exacting. Excellent. Exceeding. Exemplary.

4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

FX & Rates

<ul>
<li>Last week's spike in US asset prices, including US Treasuries, in the wake of gangbuster US CPI-inflation data for October, has proved short-lived.  </li>
<li>However, EM currencies have outperformed developed currencies since 1st November thanks partly to EM central bank policy rate hikes, a lack of currency contagion and domestic macro data.</li>
<li>We focus on low-volatility Asian currencies, the under-pressure Norwegian Krone, Polish Zloty,  Hungarian Forint and Euro and the importance of the release of UK retail sales data on Friday.</li>
</ul>


Last week's spike in US asset prices, including US Treasuries, in the wake of gangbuster US CPI-inflation data for October, has proved short-lived.  
However, EM currencies have outperformed developed currencies since 1st November thanks partly to EM central bank policy rate hikes, a lack of currency contagion and domestic macro data.
We focus on low-volatility Asian currencies, the under-pressure Norwegian Krone, Polish Zloty,  Hungarian Forint and Euro and the importance of the release of UK retail sales data on Friday.


FX Round-Up – Calm Before the Next Storm

Chief Economist, Heteronomics

Phil Rush

Chief Economist

Heteronomics

Heteronomics represents a different kind of economics. We believe analysis should delve into the details of what is really going on, rather than using overly simplistic assumptions to quick-sell stories. Independence from myopic institutional pressures allows us to focus on the realities underlying your asset allocation decisions, without the conflicts of the old market structures. Heteronomics targets the themes driving UK asset prices, offering the benefits of depth, independence and ultimately price.

UK-centric macro research

Macroeconomics

<ul>
<li>On 13 September, Norway will hold parliamentary elections to the 169-seat Stortinget. Polls suggest that the ruling coalition will lose power to a centre-left coalition, led by Arbeiderpartiet (Labour).</li>
<li>A win by the centre-left would probably strain Norway’s relationship with the EU, as some coalition members support a renegotiation. Nonetheless, we think any fundamental change in their relationship is unlikely at this stage.</li>
</ul>


On 13 September, Norway will hold parliamentary elections to the 169-seat Stortinget. Polls suggest that the ruling coalition will lose power to a centre-left coalition, led by Arbeiderpartiet (Labour).
A win by the centre-left would probably strain Norway’s relationship with the EU, as some coalition members support a renegotiation. Nonetheless, we think any fundamental change in their relationship is unlikely at this stage.


Global FX volatility – as measured by the 5-day Standard Deviation (SD) in the daily percentage change in the spot (closing) price of a turnover-weighted basket of 32 major currency pairs against the US Dollar – remains depressed by historical standards.While global FX volatility rose slightly on 11th August to about 0.32 SD following the release of US CPI-inflation data, it is still well below its level one month ago (0.43 SD) and 10-year average (0.47 SD). Notably global FX volatility is at a similar level (0.30 SD) as it was in the run-up to the 16th June Fed meeting and release of a more hawkish FOMC “<a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20210616.pdf" target="_blank" rel="noopener">dot-chart</a>”.Volatility versus the US Dollar in most of these 32 developed and EM currencies has either fallen in the past month from already modest levels or been broadly stable. Volatility in the high-yielding Brazilian Real and low-yielding Canadian Dollar, Czech Crown, Norwegian Krone and Hungarian Forint has fallen the most in absolute terms. However, there have been a few notable exceptions, including the Turkish Lira, Thai Baht and Chilean, Colombian and Philippines Pesos.USD/THB volatility has risen further in past month and is now near top end of its admittedly narrow 12-month range. The Baht has been choppy against a strong US Dollar, resulting in the Baht NEER appreciating 1.4% since the multi-year low recorded on 6th August.GBP/EUR volatility is currently at its lowest level since early June. Sterling’s appreciation against the Euro has been slow and steady, in line with our expectations. Volatility in global FX (and the S&amp;P 500) also remains very modest compared to volatility in other asset classes, notably US Treasuries and Brent crude oil (see Figure 5). Most of the price action has been in the US rates market in recent months, perhaps unsurprisingly given protracted debate about the timeline for Fed tapering and rate hikes.There are a number of factors behind this low transmission from US rates to Dollar crosses and equities but, as was the case in late-2019, FX markets are ultimately pricing in very little risk of policy, macro data or geopolitical surprises, in our view.

Global FX volatility – as measured by the 5-day Standard Deviation (SD) in the daily percentage change in the spot (closing) price of a turnover-weighted basket of 32 major currency pairs against the US Dollar – remains depressed by historical standards.While global FX volatility rose slightly on 11th August to about 0.32 SD following the release of US CPI-inflation data, it is still well below its level one month ago (0.43 SD) and 10-year average (0.47 SD). Notably global FX volatility is at a similar level (0.30 SD) as it was in the run-up to the 16th June Fed meeting and release of a more hawkish FOMC “dot-chart”.Volatility versus the US Dollar in most of these 32 developed and EM currencies has either fallen in the past month from already modest levels or been broadly stable. Volatility in the high-yielding Brazilian Real and low-yielding Canadian Dollar, Czech Crown, Norwegian Krone and Hungarian Forint has fallen the most in absolute terms. However, there have been a few notable exceptions, including the Turkish Lira, Thai Baht and Chilean, Colombian and Philippines Pesos.USD/THB volatility has risen further in past month and is now near top end of its admittedly narrow 12-month range. The Baht has been choppy against a strong US Dollar, resulting in the Baht NEER appreciating 1.4% since the multi-year low recorded on 6th August.GBP/EUR volatility is currently at its lowest level since early June. Sterling’s appreciation against the Euro has been slow and steady, in line with our expectations. Volatility in global FX (and the S&amp;P 500) also remains very modest compared to volatility in other asset classes, notably US Treasuries and Brent crude oil (see Figure 5). Most of the price action has been in the US rates market in recent months, perhaps unsurprisingly given protracted debate about the timeline for Fed tapering and rate hikes.There are a number of factors behind this low transmission from US rates to Dollar crosses and equities but, as was the case in late-2019, FX markets are ultimately pricing in very little risk of policy, macro data or geopolitical surprises, in our view. 

Low Global FX Vol: Maturity or Complacency?

The Norges Bank is even more hawkish than in March and now signals a September rate hike. Its main assumptions on the pandemic are unchanged, but the pick-up in wages has fed a high capacity utilisation view, driving the hawkish policy surprise.Our relatively gloomy global view for next winter falls after this guided date, so we do not expect the policy rate take-off to be delayed. The realisation of downside risks is likely to weigh on the subsequent hiking trajectory, though.

The Norges Bank is even more hawkish than in March and now signals a September rate hike. Its main assumptions on the pandemic are unchanged, but the pick-up in wages has fed a high capacity utilisation view, driving the hawkish policy surprise.Our relatively gloomy global view for next winter falls after this guided date, so we do not expect the policy rate take-off to be delayed. The realisation of downside risks is likely to weigh on the subsequent hiking trajectory, though.

<ul><li>Norway's CPI inflation was 3.0% y-o-y in April, down from 3.1% in February and in line with both us and the consensus. Inflation will fall further, but the Norges Bank is set to be one of the first central banks to tighten.</li></ul>

Norway's CPI inflation was 3.0% y-o-y in April, down from 3.1% in February and in line with both us and the consensus. Inflation will fall further, but the Norges Bank is set to be one of the first central banks to tighten.

Norway

The Norwegian krone is the official currency of the Kingdom of Norway.  The US dollar is the official currency of the United States of America.

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FX Round-Up – Calm Before the Next Storm

Interest rate and FX vol has subsided with directionality in EM and developed market currencies driven by domestic macro data and monetary...

Olivier Desbarres

Norway: When the Fax Change

Norway's election on 13 September is likely to yield a new coalition government containing members that favour a renegotiation of terms with the...

Phil Rush

Low Global FX Vol: Maturity or Complacency?

Global FX vol is low by historical standards and relative to vol in US Treasuries, and for good resason. But FX markets are pricing in very little...

Olivier Desbarres

Norway: Runway for September Lift-Off

The Norges Bank signals a Sep-21 rate hike on its high capacity utilisation view. Our relatively gloomy global view focuses later, so we do not...

Phil Rush

Norway: CPI Turns South

CPI inflation was 3.0% y-o-y in April, down from 3.1% in February and in line with both us and the consensus. The Norges Bank will be one of the...

Phil Rush

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