Citi: Month-end FX rebalancing: FXWW

From the FXWW Chatroom: The final estimate of month-end FX rebalancing points to USD selling against most currencies on Friday, 29 September.
·       Most equity markets in G10 have ended the month with positive returns with the exception of New Zealand, UK and Australia. On the other hand, bonds have sold off across the board suggesting that foreign investors will have to increase their hedge ratios, leading to an overall sell USD signal.
·       Increased uncertainty around Brexit topped off with hawkish comments from the BoE saw UK assets underperform with UK bonds collapsing by -3% MTD. This strengthens the signal to buy GBPUSD as foreign investors will also need to buy back GBP to reduce hedges on UK assets. The final GBP buy-signal is the only one to exceed 0.5 standard deviations this month.
·       Continued strong performance from Japanese equities coupled with our models hedge ratio assumptions suggests foreign investors’ JPY selling needs dominate local flows in the opposite direction. This leads to an overall sell JPY signal, the only one this month.

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