Market Thinking

making sense of the narrative

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Category: Currencies

Is it time to re-peg the HK$?

The world of FX reserves has been upended over the freezing of Russia’s assets in a way not seen since Nixon closed the Gold Window in 1971. The arrival of the Petro-Ruble marks the end of the Petro-$ that emerged Read more…


Is it time for the Bancor?

Amid all the discussions about the sanctions – and counter sanctions- against Russia, an extremely important issue is rearing its head; what is the future of the Petro-Dollar? And, more broadly, what is the future for the dollar as the Read more…


Making sense of currencies

The following post is a long form read about the principles of Market Thinking as applied to currencies. The short take-away is that most of the market’s mental models about currencies arise from a combination of theory and practical experience of the boom/bust behaviour of emerging markets over the last 75 years. Taken as snapshots, these models can appear confusing and contradictory; sometimes growth is good for an exchange rate, other times bad. Sometimes it is all about the current account, other times it doesn’t matter at all and only interest rates are important. Other times none of it seems to work. Not only do we try to make sense of which narrative works when, we also note that most developed market exchange rates move within a + or minus 10% range which means limited real world impact. And this includes Sterling over Brexit. Moreover, despite frequent attempts to treat China as an emerging market for FX purposes, it refuses to behave as such, leading to multiple failed narratives here too. (click on header for more)