Quarter End
For those markets, including the UK, which will be observing Good Friday, today will be the last trading session of both March and Q1 2024. This means that we should expect today to mark the final day of any major FX position adjustment. The end of a month, quarter or year brings with it specific month-end flows which disturb FX spot and swap pricing. March 2024 has seen the US equity and risk rally continue. Despite the US Dollar having stabilised in recent sessions, there will be the risk today that quarter end portfolio rebalancing brings an element of USD selling to markets. However, it isn’t so straight forward this time around, potentially inviting choppier trading conditions to today’s session and some logic defying moves.
Firstly, despite the bank holiday tomorrow and Monday, there is still a key US data release due tomorrow. Despite some states in America also observing Good Friday alongside the UK and much of Europe, the US data calendar pauses for nothing! The data due to be released tomorrow concerns US inflation and will be delivered to highly illiquid markets. Whilst we will no doubt analyse this data in future briefings and sessions, its delivery tomorrow could limit the extent and orderly delivery to the market of month end flows today.
The other key element that will impact the expected orderly selling of US Dollars during this set of month end flows is risk sentiment. As I mentioned, the key element driving the expected sale of USD today in month end rebalancing flows is the outperformance of US asset prices over the last period. That has been driven by strong risk sentiment that up until the beginning of this week had been beginning to falter. As a result of the PBoC taking a tougher stance in defending the Yuan this week, risk sentiment within FX has leapt higher. Declining FX volatility has supported high beta FX at the expense of the Dollar. This further complicates how today’s often volatile month end flow could be expressed through spot and swap prices.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Germany and the EU The Germany Supply Chain Act came into force in 2023 as a result of Germans wanting to do something good for employees in other countries in particular with respect to human rights and environmental issues. So far so good. But a combination of cost and bureaucracy overlaid with the difficulty of […]
US Dollar With the US Election just over 6 months away it is time to think about the implications for USD with a new President. In case you have missed it Trump plans In the event he wins to devalue USD to boost US exports as part of his MAGA philosophy. As we know ex […]
Japanese Yen With JPY at a new 34 year low versus EUR, the market is set for an ambush by the Bank of Japan if it acts today at the end of their Policy Meeting to support the Yen. The reason that the market is susceptible is because it has convinced itself that the BoJ […]