Talk of the reflation trade has stepped up a gear, after comments made by the chairman of US Federal Reserve to the house committee on financial services in late February.
Jerome Powell said that an increase in interest rates was not on the cards and that bond buying would continue. The prospect of further fiscal stimulus saw interest in commodity-linked currencies increase.
Investors are keener than ever to better understand flows
The view that the world is in a risk-on environment after the result of the November US presidential election and in light of the progress of coronavirus vaccine programmes is supported by Sam Lynton-Brown, deputy head of global macro research and head of FX strategy Europe at BNP Paribas.
“Monetary and fiscal policy is exceptionally (and asymmetrically) supportive, which combined with global economic recovery as vaccine deployment occurs creates a reflationary risk-on market environment,” he says.
“Such an environment is, we believe, consistent with continued structural USD depreciation, albeit in a more selective fashion than in 2020.”
FX flows are fleeing carry strategies, but holdings of carry positions remain positive – which is a risk-seeking indicator, explains Daniel Tenengauzer, head of markets strategy at BNY Mellon Markets.
“Investors
