Looking For the Unwinds
There are many reasons behind the dollar’s recent rally but amid all the emphasis on policy changes, positioning perhaps is somewhat underappreciated. Of course, valuations of any asset will change when the underlying fundamental drivers change, but the extent of the valuation adjustment will often depend on the ex-ante positioning of an individual currency or currency pair. Looking at structural positioning across G10 and EM, in addition to the more recent adjustments so far in 2013, is clear the euro and dollar have the most to gain if markets begin to entertain a full unwind of the post-crisis ‘new normal’.
Click here to read the full report: UBS