Currency market analysis, hedge-ratio research and practical guidance for treasury teams and portfolio managers running FX exposure.
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In our note from April of 2020, which now feels like half a lifetime ago rather than less than 5 years (it’s not the years but the miles?), we wrote about how COVID and the related crises had “made it clear that in many ways, reality is more like Calvinball” than an orderly system: one where “the rules of the game around the world appear to be in flux”. This week has provided yet more evidence, if any more was needed, for this view.
Another week into Trump 2.0 and you’d be forgiven for starting to tune out some of the news around the administration. After all, nothing screams kabuki more than touting “yuge” concessions from the Canadian and Mexican governments that were already in the works… Admittedly it’s two birds with one stone (that was going to be thrown anyway) for the US’s neighbors, but it does make it hard to take the threat of tariffs seriously. That being said, while some of the spectacle is certainly theater, like a bullfight it does come with horns as markets and political actors react to the latest news.
The saying is that one should wait until you see the whites of the enemy’s eyes before firing, but are there times when it’s worth waiting until you feel their breath? Case in point, the “whites” (losses) are certainly visible now in real estate debt, as we’ve highlighted in these pages, with the obvious consequences for owners of real estate debt. The latest data from the FDIC served to further highlight the obvious, warning that there are “63 ‘problem banks’ and $517 billion in unrealized losses” courtesy of higher rates hurting bank holdings of fixed income.
Sell EURGBP above 0.85. First target 0.82. Longer term targets sub-0.80. Stop above 0.86.