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What Is Driving G10 Currencies?

The Japanese yen, Swedish krona, and British pound have been notable underperformers compared to the other G10 currencies this year. For the Japanese yen and Swedish krona, these currencies have struggled given their relatively dovish central bank policies. This policy contrast is most apparent in Japan, where the Bank of Japan has maintained very loose monetary policy even as the U.S. Federal Reserve (Fed) has raised rates aggressively. Interest rate differentials have been one factor driving U.S. dollar strength.

Furthermore, all three countries, and particularly Japan, are net energy importers. All three have seen their trade balances deteriorate significantly from the sharp rise in energy prices.

What will it take for the yen, krona, and pound to regain strength? For these currencies to rebound, we need to see the Fed tightening cycle conclude—and even start to reverse; their respective central bank policies accelerate interest rate increases to bring them toward levels in the U.S.; and/or lower energy prices.

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Groupthink is bad, especially at investment management firms. Brandywine Global therefore takes special care to ensure our corporate culture and investment processes support the articulation of diverse viewpoints. This blog is no different. The opinions expressed by our bloggers may sometimes challenge active positioning within one or more of our strategies. Each blogger represents one market view amongst many expressed at Brandywine Global. Although individual opinions will differ, our investment process and macro outlook will remain driven by a team approach.