In the last year, a lot has changed in currency markets.
The US dollar has rallied significantly, the euro has fallen towards its lowest level in more than a decade, while the Japanese yen, once the center of the currency world, hasn’t done much.
Via Citi’s Steve Englander, here are 8 lessons the currency markets have taught us in the last year:
- Not every currency shock is a US dollar shock.
- Currency shocks look bigger than they are, but are as painful as they feel.
- Bouncebacks occur over time, not the day, or week, or even month after a shock.
- Asset markets may be moving faster than in the past relative to economies…
- …a function of low transactions liquidity in periods of stress but lots of assets looking for returns.
- Investors do not know how to handle incredible correlations.
- Policymakers do not know how to handle incredible correlations.
- Positions are often deeper than they look.