Macro FX Trading Q1 2024 commentary
| Asset class | Forex (FX) |
| Instruments traded | Liquid spot FX pairs including the following: USD, EUR, GBP, CHF, JPY, CAD, AUD, NZD, NOK, SEK, SGD |
| Investment style | Global Macro Discretionary Trading (trade-by-trade decision-making, driven by macroeconomics and central banks' policies) |
| Quarterly return | -1.8% |
| Year-to-date return | -1.8% |
Performance in USD as of 31/03/2024 and net of all costs including management fees. The foreign exchange market, commonly referred to as the Forex or FX, is the global marketplace for the trading of one nation's currency for another.
Strategy performance and positions
During the first quarter of 2024, the portfolio experienced a loss of 1.8%.
This was the result of losses from betting on the Norwegian Krone (NOK) against the Canadian Dollar (CAD) in January and March but was mostly offset by some gains from betting against the Swiss Franc (CHF) in February and March. This core short CHF position proved profitable as Switzerland became the first major economy to cut interest rates. The Swiss National Bank (SNB) surprised the market at its March meeting with a decision to lower its main policy rate by 0.25 percentage points to 1.5%.
Best-performing trades
USD/CHF: +4.3%
GBP/CHF: +1.1%
EUR/USD: +0.6%
EUR/GBP: +0.3%
GBP/JPY: +0.2%
Worst-performing trades
USD/NOK: -3.8%
USD/CAD: -1.7%
EUR/JPY: -1.2%
USD/JPY: -0.7%
GBP/USD: -0.7%
The rest of the currency bets didn't have as much impact on the portfolio during the quarter. The US dollar (USD) strengthened as interest rates rose, and other major currencies like the Euro (EUR) and Japanese yen (JPY) moved accordingly. The Australian (AUD) and Canadian dollars (CAD) weakened against the US dollar.
In the bond market, major global economies followed the US and prices reflected expectations of reduced interest rates as market participants believed rate cuts could start in early summer for most countries but later in the US. This difference in policies would create a rate differential that supports the USD, which would maintain higher rates longer. This was especially noticeable in the forward curves, which are indicators of future interest rates expectations.
Oil prices rose due to geopolitical tensions and steady global economic growth, while gold and copper also increased, reflecting a positive economic outlook.
Lastly, stock markets performed well despite rising interest rates, with the focus shifting from technology companies to energy and financial sectors.
Market developments and outlook
The US economy is showing strong signs of growth and job creation, supported by government spending. Global economic activity is also on the rise, with positive manufacturing data from Europe and China.
The Federal Reserve is considering cutting interest rates three times this year, but there is some disagreement among policymakers as to the actual numbers of rate cuts to expect. Despite strong economic growth, the market is expecting fewer rate cuts than before, with a peak of seven expected rate cuts of 25 basis points each.
Stock markets, credit markets and oil markets are doing well, and there is a shift in focus towards commodities, mining and financial sectors. Supporting these market movements is a sentiment shared by investors that the Federal Reserve may be inclined to ease its monetary policy, as financial conditions are strong and economic data is solid. There is also a growing belief that the Fed might be willing to tolerate a higher level of inflation than its target of 2%.
Copper and gold markets are also seeing positive trends. There are several supports for copper prices, such as the need for grid upgrades to accommodate increased electrification, advancements in artificial intelligence, the push for environmentally friendly initiatives, and Europe's response to geopolitical changes, all while there is limited investment in energy and resource capacity.
Gold, on the other hand, is experiencing strong demand from Asia, in addition to ongoing purchases by central banks, which have taken place despite recent increases in interest rates and a strong US dollar.
The US bond market is showing unusual patterns with an inverted yield curve, and this could indicate a broader economic shift. In other countries like the UK, Europe and Canada, there are expectations of interest rate cuts due to slower economic growth compared to the US. The Swiss Franc is weakening due to expected policy changes, and the Japanese yen is being closely watched for potential intervention by the Bank of Japan.
The upcoming US election and potential changes in the Federal Reserve policy are also important factors for the market and will continue to capture investors’ attention in the coming months.