Instruments traded | FX spot |
Asset classes | FX |
Investment style | Discretionary (non-systematic), macro analysis |
YTD return | 22% (net of trading costs, service fee and performance fee - considering a performance fee for investing since inception but, since your performance fee will depend on your point of entry, your net returns will vary too). |
Annualised volatility | 20% |
Average trades per week | 13 |
Market overview
Aggressive tightening cycles set by global central banks was the main trading theme for this third quarter of 2022. The Federal Reserve, European Central Bank (ECB) and Bank of England all raised interest rates in Q3. The strategy was well-positioned and took profits in short positions in EUR and GBP against long positions in USD and CHF, among others. This was due to a combination of factors such as widening rate differentials, terms of trade and sentiment, which worked against both the UK and the continental economies.
Despite Japan’s decision on unilateral currency intervention to strengthen the yen, it continued to depreciate against the dollar and USD/JPY kept going up. Japan now remains the only major economy in the world to keep negative interest rates as most other major central banks aggressively raised interest rates to fight inflation.
The UK government’s unfunded tax cuts aimed at benefitting high earners panicked the market and caused the collapse of GBP/USD. The UK gilt yield skyrocketed with the terminal UK policy rates climbing to 6.3 percent at the peak. In an unexpected change, the policy is being reversed in an attempt to stop the GBP from going down in value further.
Strategy performance (net of fees)
Since inception (February 2015)
| 197% |
Best-performing positions
EUR/USD | 4.4% |
EUR/CHF | 3.0% |
GBP/USD | 2.3% |
GBP/CHF | 1.7% |
USD/JPY | 1.3% |
Worst-performing positions
AUD/JPY | -0.5% |
USD/CAD | -0.3% |
AUD/USD | -0.1% |
EUR/GBP | -0% |
EUR/NOK | -0% |
Outlook
The rise in both nominal and real US rates and the USD took its toll in Q3, both on risk assets as well as on the purchasing power of currencies.
The UK economy is in the spotlight and it remains to be seen what is enacted of the original budget proposal that was initially put forward by the Cabinet. The Bank of England’s limited intervention in October is expected to give further insight.
In Q3 the focus is on central banks and how they will respond to continued high inflation. Additionally, it will be interesting to see how the situation in Ukraine develops vis-a-vis energy supply given oil and gas (among other commodities, hard and soft) remain the key input to prices and terms of trade.
Gas prices collapsed and oil is significantly off its highs, pushing OPEC+ to discuss potential substantial cuts. Therefore there is a possibility for oil price volatility in the upcoming period.
Key US data and the November Fed meeting are on the market’s radar, along with the October ECB meeting regarding potential hikes (either 75 bps or 50 bps). Another thing on the watchlist is the midterm elections in November where the Democrats are expected to retain the Senate but lose the House, which can lead to a potential change in fiscal spending.