Our FX risk indicator is based on the evolution of Asian currencies (excluding Japanese yen) versus the US dollar. Since Q2 2019, we see a continued improvement in risk appetite in the FX space, which has not happened since the end of 2017/early 2018. In our last update, our indicator is up 1.3% vs the USD on a quarterly basis. The most important driver of risk appetite/risk aversion has undoubtedly been the US-China trade war over the past two years. It has played a key role as driver of FX exchange rate, notably in Asia. The recent trade truce which has been formalized by the Phase 1 trade deal, along with year-end improvement in USD liquidity have favored risky assets versus safe heavens. We expect this trend will be prolonged in Q1 this year as liquidity will keep increasing and geopolitical risk should remain broadly contained, at least on the Chinese-US front.
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