A risk-off trade by nature, but direct FX link is possible
On Monday UBS Macro Strategy proffered the view that it is now time for investors to cut allocations to corporate credit. As some of the drivers behind the anticipated move – in particular reduced risk reward in carry trades – are uniform across markets, the FX implications appear less clear-cut. Nonetheless, the broader backdrop of rising liquidity premiums driven by regulation and Fed normalisation will feature heavily in FX. As a result, a major correction in credit will affect currencies, both through direct flow adjustments and general correlation.
Read the full report: UBS