The two cases for the US Dollar at the end of the year and what to look for – Month in Review: November 2022
Macroeconomic Environment Review
FX markets were driven by unexpected events and developments in 2022, notably the Ukraine war and the rapid adjustment in monetary policy. The big winner was the USD although it lost some of its gains in recent weeks. In our view, soft-landing, hard-landing or something in-between are all possible outcomes for 2023 and there are still some wild cards on the table that could surprise.
The case for USD weakness
The weak USD scenario rests on several forecasts. First, US inflation continues to recede prompting the Fed to slow interest rate hikes very soon and to pause the tightening altogether in the first quarter of next year. Second, the Euro-area economy holds up better than feared through the winter and any energy emergency is avoided. Fourth, China manages to muddle through Corona without large lookdowns and political unrest. Overall, the case for USD weakness is a soft-landing scenario. Severe recession is avoided, inflation recedes, uncertainties decline and global economic growth revives in the course of the year.
The case for more USD strength
The case for USD strength is largely the opposite of the case for USD weakness. Importantly, the recession is only delayed and not avoided. This applies to the US, the Euro-area, Japan, China and much of the global economy. Some of the reasons are idiosyncratic, e.g. China, but much has to do with the difficulty of taming inflation without creating sufficient labor market slack. Moreover, monetary policy works with significant lacks and the impact of the tightening so far has not yet fully spread. Overall, the case for more USD strength is a hard-landing scenario in which the worst has yet to come.
Monthly Performance Review
During the month of November 2022, AENAON Syncro Strategies generated the following total returns net of fees:
Across the spectrum of our benchmark indices, our strategies’ performance during November was rather mixed. As a comparison, the US S&P 500 equities index gained 5.38%, the Barclay Hedge Fund Index posted a 3.13% advance, the Barclay CTA Index lost -1.52% while the other benchmark indices can be seen on the chart below.
Chart 1: Monthly Performance vs. Benchmark Indices – November 2022
Charts 2, 3 and 4: Inception-to-Date Performance vs. Benchmark Indices
You can always review our updated factsheets at the following Fundpeak links, with monthly performance updates and statistics since inception: