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Foreign Exchange

Macro FX: Recoupling, reflation and recession

A discussion of the macro picture in FX markets was overseen by Paul Bednarczyk, currency strategist at consultants 4CAST, with David Simmonds, head of FX strategy at RBS, Simon Derrick, head of the currency strategy team at The Bank of New York Mellon and Luca Bindelli, currency economist at Morgan Stanley, participating

Global Investor debate


There are three key features of today's market, Simmonds said. First, the liquidity-drenched happy days are over. With liquidity constraints, currencies with high external funding requirements are more volatile. "If you haven't saved well or acted prudently then at some point you will suffer."

The panel discuss the macro picture. From left, Paul Bednarczyk,
Luca Bindelli, David Simmonds, Simon Derrick and Rich Mahoney
Secondly, many participants believe a high Consumer Price Index is good, where in fact it is potentially very bad. And finally, players are dealing in world of positive output gaps.

"Emerging markets are no longer exporting disinflation, they are exporting inflation, and grappling with their own inflation problems." Investors need to focus not on rate spread, but real rates and what the currency response to inflation is.

Derrick backed Simmonds' sombre outlook, agreeing that inflation is going to be a major factor. Six years of very low interest rates across currencies like the Yen is ending, and investors are fleeing. The emergence of real inflation is exacerbating this so it seems unlikely there will be the rate hikes needed to deal with the problems.


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