For years we have argued that currencies enjoying strong fundamentals and slightly higher bond yields, such as commodity and Scandinavian currencies should benefit from portfolio inflows. Mainly, this has been due to investors targeting higher quality investments and improved returns, despite weak US and European growth, the debt crisis and political turbulence, as well as vast injections of liquidity by major central banks. However, just a few months ago, after the ECB convinced markets they would do whatever it takes to save the euro, and stronger US growth and an improving labour market raised hopes the Fed would end or at least reduce bond purchases sometime late this year or early 2014, we expected this major theme to be replaced by other FX market drivers.
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