Risk aversion has risen considerably since the start of the year, mainly on the back of rising recession fears. This has been partly due to more muted external demand expectations in relation to China and the Fed’s more hawkish monetary policy stance.
Elsewhere, it has been suggested that central banks such as the ECB and/or BoJ have not been aggressive enough or that they have considered the wrong policy tools in order to support growth and price developments.
Looking ahead, the emphasis will likely be on global growth prospects to drive sentiment further. That is, at least unless further moderating growth conditions mean a more dovish policy stance by major central banks such as the Fed is back on the cards.
In G10 FX the JPY, CHF, given its eroded rate advantage, and the EUR have been among the safe haven currencies of choice.
However, it must still be noted that the CHF has been the clear underperformer, at least from a broader angle. Even if the currency is keeping a positive correlation with risk sentiment, we believe that the SNB has been successful in reducing the currency’s attractiveness. As such we expect currency upside to remain limited against its safe haven peers.
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