Currency traders are switching up their playbooks as some of the most time-tested strategies are fizzling in the $5.1-trillion-a-day market. Momentum, carry and value bets have delivered lacklustre returns in foreign exchange this year, prompting some money managers to shelve them in favour of event-driven and niche positions.
A Different Kind of Alpha – Profit & Loss
Even when implementing passive currency hedging strategies, it’s still important to think in terms of alpha, says Jay Moore, a senior vice president at Brown Brothers Harriman, during a panel discussion at the Profit & Loss Forex Network New York conference.
Sterling slid to 10-month lows against the dollar on Wednesday after data showed British inflation failed to rise as expected, a day after Brexit-linked political turmoil had sent the currency hurtling lower.
The dollar advanced for a second day after Federal Reserve Chairman Jerome Powell gave an upbeat assessment of the US economy, helping spur declines in raw materials and emerging-market currencies.
- Dollar Rally Continues After Bullish Fed Testimony – Financial Times (subscription)
- Markets Hear What They Want to Hear From Powell – Bloomberg
The euro fell and the yen slid to a six-month low on Wednesday as the dollar extended its rally following bullish comments from US Federal Reserve Chairman Jerome Powell about the strength of the US economy.
Bank of America analysis shows the dollar outperforms in US hours – a bullish signal for the currency – while the pound rallies during UK hours and the euro slumps disproportionately. The yen slides markedly during Asia trading.
The Bank of England’s Working Group on Sterling Risk Free Reference Rates, which is tasked with leading the transition away from Libor to term Sonia (sterling overnight index average) rates, has launched a consultation process to help drive the evolution, which is intended to be complete by the end of 2021.
The European Central Bank is concerned about the risk of systemic problems if efforts to reform Euribor, one of the bank-to-bank lending benchmarks caught up in a global rate-rigging scandal, get torpedoed.
In a new report to the G20, the Financial Stability Board (FSB) has concluded that “cryptoassets do not pose a material risk to global financial stability at this time”.
While this is a welcome boost for the crypto industry, the FSB does make clear that these assets should be vigilantly monitored by authorities going forward.
Recently appointed advisor and London Stock Exchange veteran David Lester, chief executive Graham Rodford and chief financial officer Matthew Pollard at institutional crypto exchange Archax discuss the upcoming launch of their exchange, and their thoughts on the future of institutional crypto trading.
Despite all the uncertainty and scepticism surrounding the trading of cryptocurrencies, recent moves suggest many of banking’s biggest names are in no way deterred from cashing in on the crypto craze.
Since 2011, there have been 56 cyberattacks directed at cryptocurrency exchanges and other digital currency platforms around the world, bringing the total of hacking-related losses to $1.63 billion. The most recent hack took place on July 9, when hackers swiped $23.5 million worth of cryptocurrencies from Israeli platform, Bancor.
The Depository Trust and Clearing Corporation (DTCC), which holds data for around four-fifths of the global derivatives market, is hedging its bets ahead of Brexit by establishing an office in Ireland in advance of the March 2019 UK departure date.
The London Stock Exchange Group’s central counterparty LCH has cleared its first interest rate swaps referencing the newly introduced US alternative to the Libor benchmark. Credit Suisse, Goldman Sachs and JP Morgan were among the first participants to clear the Secured Overnight Financing Rate (SOFR) swaps with LCH.
Trading Technologies has partnered with a group of cryptocurrency exchanges to stamp out manipulation on their platforms. Coinfloor, a UK crypto exchange operator, will be using the firm’s so-called Score technology to monitor its markets for manipulation and other unusual activity.
IBM has teamed up with financial technology start-up Stronghold on a cryptocurrency that’s pegged to the US dollar. The tech giant has put its weight behind a so-called “stablecoin”, a digital token that, in principle, is tied to an existing government-backed currency, in order to reduce the volatility associated with virtual currencies.
Over the longer term, investors would rather be safe than sorry. Traders favour buying call options over puts on the yen and the Swiss franc, both haven currencies, as global trade tensions escalate and political risk becomes hard to price. Those are the only two currencies among the Group-of-10 where investors prefer calls against the dollar.
The Swiss franc and Scandinavian currencies are among the most vulnerable to the escalating trade war between the US and China. The franc, Danish krone and Swedish krona are likely to be the worst-affected given that they represent small and open economies even though the nations’ direct trade exposure to China is relatively low.
A perky dollar hurt emerging market assets on Wednesday with stocks edging lower and many currencies weakening, but Turkey’s lira rallied to a one-week high on expectations of another interest rate hike next week.