The business cycle is an important exchange rate driver. At QCAM we have been using business surveys for many years to systematically capture the link between business cycles and exchange rate trends. This rule-based approach is now available as a total return alpha strategy via a UBS certificate. QCAM FX BIAS is diversified over 8 major currencies and delivers attractive returns at moderate volatility and low correlation with FX risk factors.
Vaccine enthusiasm is helping financial markets to finish 2020 on a positive note. We expect global reflation to dominate in 2021, which should be USD negative. However, we are not prepared to take just any risk. We stay away from deficit currencies with idiosyncratic risks like the GBP. In our view, safe-haven currencies with surplus buffers like the JPY still have upside potential. Even better are surplus currencies with.
Economy and Interest Rates
The near-term outlook is clouded by the rise in Corona infections in Europe and the US, which will probably depress economic activity around the turn of the year. The outlook for 2021 improves with the spring and the expected wide-spread vaccine deployment. This is likely to unleash pent-up demand.
The USD depreciated versus all major currencies over the last months as vaccine euphoria boosted risk sentiment. Even safe-haven currencies like the CHF and the JPY held up well. EM currencies also appreciated and even the TRY rallied after the central bank raised interest rates sharply.
Going into more detail: Based on our proprietary analytical framework to take scalable exchange rate positions we are taking a close look on individual currency pairs.