FX Markets spent July in a risk-on mode, but will the trend continue? – Month in Review: July 2023
Macroeconomic Environment Review
The US dollar initially fell in July on the back of lower-than-expected inflation figures and expectations that the Fed may be nearing the end of its tightening cycle. However, the dollar rebounded in the second half of the month as economic data from the US continued to improve and the market trimmed its expectations of future rate cuts. In contrast, economic activity reports from the Eurozone and the UK were weaker in July, and inflation remained high in both regions. This led to growing concerns about a recession in these economies, and the euro and pound came under pressure. The Bank of Japan also surprised markets by making its yield curve control policy more flexible. This was seen as a sign that the BoJ is willing to tolerate higher interest rates in order to support the Japanese economy. As a result, the yen weakened against the dollar. Overall, July was a volatile month for FX markets. The dollar ended the month down against all major currencies, but it has rebounded in early August. The euro and pound are still under pressure, and the yen has weakened further.
The divergence in monetary policy paths between the US and the Eurozone is likely to continue in the coming months. The Fed is expected to continue raising interest rates in an effort to combat inflation, while the ECB is likely to pause its tightening cycle in September. This divergence could lead to further weakness in the euro and pound, and strength in the dollar. The UK and Sweden are also likely to experience a hard landing as they follow similar monetary policy paths to the Eurozone. This could lead to further weakness in the pound and krona.
Monthly Performance Review
During the month of July 2023, AENAON Syncro Strategies generated the following total returns net of fees:
Across the spectrum of our benchmark indices, our strategies’ performance during July was positive. As a comparison, the US S&P 500 equities index gained 3.11%, the Barclay Hedge Fund Index posted a 1.81% advance, the Barclay CTA Index added 20.22% while the other benchmark indices can be seen on the chart below.
Chart 1: Monthly Performance vs. Benchmark Indices – July 2023
Charts 2, 3 and 4: Inception-to-Date Performance vs. Benchmark Indices