Sterling’s storm has passed
Late last year we believed GBP had reached a turning point and we
thought concerns would shift elsewhere, thereby giving the currency
some room to recover. This process has unfolded and is now moving to
a new phase. GBP still faces significant tests. Overall the path of least
resistance is still to favour GBP versus the USD rather than the EUR.
FX volatility falls as equity markets
If the recent recovery in global stock markets continues, then we should
expect further declines in FX volatility, and a strong performance from
high-yielding EM currencies. For G10 the biggest winners will be AUD,
NZD, and SEK, and the biggest losers will be JPY and CHF.
The USD is the reserve currency. Deal with it.
IMF data on FX reserves shows that the USD is still the reserve
currency. We have argued that the USD’s value will decline but we
don’t argue that it will suddenly be replaced. Ideas that the SDR will
soon become a reserve currency are fanciful.

GBP – Britain’s got talent (pg 3)
Late last year we believed GBP had reached a turning point and we thought concerns would shift
elsewhere, thereby giving the currency some room to recover. This process has unfolded and is now
moving to a new phase. GBP still faces significant tests. Overall the path of least resistance is still to
favour GBP versus the USD rather than the EUR.
Sun shines on CAD, but winter will follow (pg 8)
Since briefly poking above the 1.30 threshold two months ago, USD-CAD has moved decidedly lower
with its most recent declines breaching the previous 2009 low of 1.1750. To be sure, the CAD’s
appreciation is directly related to the increase of risk appetite in financial markets, as reflected most
obviously by the recovery in the global equity market. But in the broader scheme of matters, we are less
optimistic that the current pattern of green shoots will develop into a sustained economic rebound and an
end to the financial market stresses. And in that scenario, the knock-on effects to Canada and the CAD
will be bearish.
FX volatility falls as equity markets rise (pg 14)
If the recent recovery in global stock markets continues, then we should expect further declines in FX
volatility, and a strong performance from high yielding EM currencies. For G10 the biggest winners will
be AUD, NZD, and SEK, and the biggest losers will be JPY and CHF.
The USD is the reserve currency. Deal with it. (pg 20)
IMF data on FX reserves shows the USD is still the reserve currency. We have argued that the USD’s
value will decline but we don’t argue that it will suddenly be replaced. Ideas that the SDR will soon
become a reserve currency are fanciful.