FX Outlook

The CNY has been noticeably weaker in December. After spending several weeks around 6.82-6.83, it weakened towards 6.90, before strengthening slightly at the end of last week when the dollar lost ground to most currencies.

Since this past summer, USD has rebounded forcefully from a seven-year bear cycle that started in Q1 2002. The global financial crisis has created massive demand for the USD that propelled the currency to stage a dramatic comeback.

In a world of imploding equity valuations and panic-stricken debt markets, currencies have been relatively stable.

This past week, the currency markets have found no shelter from the storm that seems to part of the financial markets' daily routine. The dollar continues to climb higher as weak economic news pours in from around the globe.

The leaders of the G20 countries met in Washington over the weekend. Collectively, their economies make up 90 percent of global GDP and are consequently more representative of the global economy than the G8, which no longer has the economic and political dominance it did when the name was formally coined in 1997 upon the inclusion of Russia.

I want to explore a theory that the recent unprecedented market volatility is actually explainable.

Adopting a foreign exchange hedging policy is one thing; sticking to it in the midst of chaos and confusion such as we have seen recently is another.

Since the writing of this article in early July for our Investment Strategy Outlook newsletter, the global financial business has utterly changed.