Today’s monetary landscape is one of divergent central bank policy. While the U.S. Federal Reserve ended its nearly 6-year quantitative easing (QE) program at the end of 2014, and has now embarked on a cycle of raising the federal funds rate, the rest of the world is still conducting QE programs and holding to zero (or in some cases negative) short-term interest rates. Currency markets have taken note. Between December 2013 and June 2015, the euro declined in value by 19% versus the U.S. dollar, while the Japanese yen and Australian dollar have each declined by 14%. Such declines are a natural market response to the loose monetary policies of global central banks relative to their U.S. counterpart. Unsurprisingly, such large moves have had the impact of placing currency risk at the forefront of investor concerns.

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The Author

Steven Sapra

Quantitative Research Analyst, Client Analytics

Lutz Schloegl

Head of Rates, FX, Commodity & EM Analytics