What do the best performing currencies have in common? – 7th April 2016

What do the best performing currencies have in common?

In the last month or so, the best performing currencies have been the Euro, the Swiss Franc, the Japanese Yen and the Swedish Krona. But why? Why do investors want to purchase these currencies? What do they have in common? Well, they all have negative interest rates so they are all expensive to own.

The relative countries Central Banks lowered interest rates so into negative territory to discourage buyers not encourage them with the aim to reduce their currencies’ value and to stave off deflation. Clearly it isn’t working. The Japanese Yen has been the strongest performer every day this month, up by 4.2% since the beginning of April.

So if investors are clearly not chasing a return on held funds, why do they appear to be impatient for any further interest rate increases by the FOMC? In the minutes of the March US FOMC meeting, released yesterday, they pointed to two more increases this year but and nobody is convinced as the US Dollar ended the day as the third weakest currency.

Needless to say, Sterling had another difficult day. Its one redeeming feature was the way Cable rebounded from $/£1.40. The psychologically-important round number provided support that had been conspicuously lacking when it was tested six weeks ago. The question now is whether Sterling will find similar support against the Euro from the support-resistance line at £/€1.225.

There is hardly anything in terms of data releases today however, the heads of the European Central Bank and the US Federal Reserve both have speaking engagements and three former Fed chairmen will be joining Janet Yellen on a panel discussion in New York.