The USD seems to be weakening; EUR/USD is flat, and otherwise the EUR is weak. GBP is strengthening, and JPY is strong against everything, and has risen a little against GBP. The recent usual correlations, where EUR has been correlated with equities and USD has risen when risk assets have fallen, are not asserting themselves.

Perhaps this tells us that the funding currency of choice for risk trades has been the JPY. That would make sense at present, with JPY LIBOR at around 0.25% compared to USD LIBOR at 0.53% (owing to recent stress in the banking system). That would cohere well with the USD and EUR falling against the JPY as risk assets fall. The GBP is rallying as I expected (one reason why I liked the short EUR/GBP trade) on fiscal tightening (worries about slowing growth being unfashionable at present — I expect they will come in time).

Elsewhere, the AUD remains correlated with risk assets and AUD/JPY is my risk indicator of choice. And the CHF is rising because of safe-haven demand and comments from the central bank that it is now less likely to intervene to hold down the currency.

Advertisements