From the FXWW Chatroom: CITI…. · The preliminary estimate of month-end FX hedge rebalancing flows buys most G10 currencies, particularly GBP and sells USD on Friday, 29 June.
· Most equity indices have gained month-to-date while government bond indices have posted lacklustre returns. These higher equity prices, dominates the hedge rebalancing signal. Despite strong returns from Australian and New Zealand equity markets, the allocation and hedge ratio assumptions suggest that the foreign need to sell USD to increase their hedge on stronger US assets is larger than any USD buying need of domestic US investor rebalancing similar gains in their foreign assets. Overall the sell USD signal remains weak for all except GBP, falling below the +0.5 historic standard deviation threshold this month.
· UK assets stand out, with both equities and bonds posting losses this month at -1.7% and -0.7% MTD respectively. This is likely to have left foreign investors in UK assets over-hedged, meaning that they will need to buy GBP to decrease their hedges. At around -0.67 historic standard deviations, the GBP buy-signal is strongest this month.
· Major economic releases at month end include CPI from France, GDP from the UK along with US UoM Sentiment. There could also be headline risk from the EU-leaders’ summit in Brussels over the month-end.
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