Too hot, too cold – what’s going on with rates & FX? - ING
*Instead of settling into a low volatility of summer carry, investors seemed to have been spooked out of widely held positions. At
time of writing, summer carry trades are being unwound, with EUR, CHF and JPY all in demand. The market is even starting to re-price the Fed cycle lower – withdrawing support for USD/JPY.
*Carry unwinds tend to be short, sharp affairs – thus this period of JPY strength may not last long. We are firmly in the global recovery – not recession camp and therefore expect US rates to start moving higher later this summer and send USD/JPY up too.
*A much broader spread of the Delta-variant (including in the US) is probably the biggest risk to a resumption of the recovery trade.
time of writing, summer carry trades are being unwound, with EUR, CHF and JPY all in demand. The market is even starting to re-price the Fed cycle lower – withdrawing support for USD/JPY.
*Carry unwinds tend to be short, sharp affairs – thus this period of JPY strength may not last long. We are firmly in the global recovery – not recession camp and therefore expect US rates to start moving higher later this summer and send USD/JPY up too.
*A much broader spread of the Delta-variant (including in the US) is probably the biggest risk to a resumption of the recovery trade.