At the same time, JP Morgan Asset Management has warned that investors will need to be more attuned to currency fluctuations from here, as competitive devaluation and shifts in monetary policy create volatility. Why has currency suddenly become so important?
Townsend Lansing, head of short/leveraged and FX Platforms at ETF Securities, believes that one of the key triggers was the decision by the Swiss central bank to remove the peg between the Swiss Franc and the Euro in early 2015. He says the subsequent swings, “woke people up to what currency could do”. This was followed by the UK General election, which destabilised the pound, China devaluing its currency in the summer and the ongoing appreciation of the dollar.
He adds: “Currency has become a very important topic in the last 12-18 months and has had a lot more impact on investment returns.”
Patrik Schowitz, global strategist, multi-asset solutions at JP Morgan Asset Management, suggests that this is likely to persist as interest rates normalise in the US. He says: There have been very large currency movements. For US dollar investors, it has been a bad year for investing in international assets. We believe they will get some of this back from here as the dollar depreciates. It is the opposite for Euro-based investors. As the Euro drifts towards fair value, those buying international assets will suffer.”
There are other reasons why currency trading has become more popular: In a climate of lower returns, it is always possible to make money from the relative performance of currencies. Equally, as currency volatility has increased, many want to use some form of hedging to remove this volatility from their portfolios.
