Chart of the Week : FX Risk Indicator
Head of Macro Analysis
Summary: In today's edition, we focus on the FX space and discuss the evolution of risk perception.
Click to download this week's full edition of Macro Chartmania composed of more than 100 charts to track the latest macroeconomic and market developments. All the data are collected from Macrobond and updated each week.
Saxo Bank’s FX risk indicator is based on the evolution of Asian currencies (excluding Japanese yen) versus the US dollar. Since Q4 2021, we see a continued increase in risk aversion in the FX space. This is the first time since the first global lockdown in 2020. In our last update, our indicator is down minus 8.9 % in Q3. This is the biggest drop since Q3 2015 when China devalued the renminbi by surprise. There are several aspects behind the rise in risk aversion : the risk of a global recession, the European energy crisis, the consequences of the Ukraine war, ‘permanent’ inflation and, first and foremost, the drop in U.S. dollar liquidity. In our view, this is one of the most important and less commented drivers. Based on our own data, global U.S. dollar liquidity is in a contraction for the first time since early 2019 (at that time the Chinese-U.S. trade war was the main disruptive factor). We expect that the coming months will remain challenging for most of the risky assets (including emerging FX currencies) as the risks mentioned below further materialize. We remain in a U.S. dollar-centered FX market, with very little alternatives.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.