26 Jan 2016
G3 outperformance during manufacturing recession - Nomura
FXStreet (Delhi) – Research Team at Nomura, suggests that based on the cyclical analysis using the global manufacturing PMI, in G10 FX space, unsurprisingly, G3 currencies (USD, EUR, and JPY) tend to outperform when the cycle is in a recession.
Key Quotes
“The other seven currencies tend to weaken, in nominal effective exchange rate terms. Another notable performance difference between a slowdown phase and a recession phase is the performance of GBP and CHF. On average, CHF and GBP tend to appreciate during a global slowdown phase, but they depreciate when the cyclical position shifts to a recession. This may suggest that CHF and GBP are not viewed as preferred “safe haven” currencies when the global economic cycle is really depressed.
In contrast, EUR performs well in a recession cycle, although its performance during a slowdown phase is not strong. Among European G10 FX, EUR tends to be the preferred safe haven currency when the manufacturing cycle is in a recession. Commodity-linked G10 FX underperformance also accelerates when the manufacturing cycle shifts from a slowdown to a recession.”
Key Quotes
“The other seven currencies tend to weaken, in nominal effective exchange rate terms. Another notable performance difference between a slowdown phase and a recession phase is the performance of GBP and CHF. On average, CHF and GBP tend to appreciate during a global slowdown phase, but they depreciate when the cyclical position shifts to a recession. This may suggest that CHF and GBP are not viewed as preferred “safe haven” currencies when the global economic cycle is really depressed.
In contrast, EUR performs well in a recession cycle, although its performance during a slowdown phase is not strong. Among European G10 FX, EUR tends to be the preferred safe haven currency when the manufacturing cycle is in a recession. Commodity-linked G10 FX underperformance also accelerates when the manufacturing cycle shifts from a slowdown to a recession.”