Insights

In April, the US dollar weakened against major currencies after President Trump announced a Middle East ceasefire on April 8 and later extended it indefinitely. However, ongoing tensions, marked by the US blocking Iranian ports and Iran closing the Strait of Hormuz, pushed oil prices back above $100 after hitting a low on April 17, sustaining inflation concerns. This limited the dollar’s losses and supported a more hawkish stance from the Federal Reserve on April 29, prompting markets to scale back rate cut expectations and even consider a rate hike next year.

Risk-sensitive currencies such as the Australian, New Zealand, and Canadian dollars outperformed, driven by optimism over a potential permanent truce. The Australian dollar led gains, supported by expectations of a third consecutive rate hike by the Reserve Bank of Australia in early May. Gold ended slightly higher, initially supported by hopes of easing inflation, but later declined as hawkish central bank signals reemerged.

The Japanese yen lagged for most of the month as reduced expectations for a Bank of Japan rate hike weighed on it. Although the Bank of Japan held rates steady, it signaled possible future increases. On the final day of the month, however, the yen surged sharply, outperforming other major currencies after Japanese authorities intervened to boost the yen against the dollar, marking the first official intervention in nearly two years. There had been ongoing discussion about potential intervention around the 160 level, near which the price has hovered for the past few months. However, this level had previously been approached and breached with only minor verbal responses and minimal market impact. Additionally, many analysts believed that the 160 mark was not sustainable on fundamental grounds and that the price would ultimately move higher. However, that day’s movement suggested a far more decisive action by the authorities which impacted the IXI strategy. The model had been building a short Japanese yen position over the previous days, capitalising significant gains along the way. By the time the intervention occurred, the strategy had accumulated a sizable exposure. Although the model reacted by flattening positions following the sharp market move, the speed and scale of the price action was so pronounced that led to a negative impact, ultimately leading to this month’s disappointing outcome.

It is particularly unfortunate that this exogenous shock comes at a time when our strategy had begun showing signs of recovery last month, from the drawdown experienced amid the increasingly complex market environment of recent months. Despite this setback, we remain fully committed to rolling out meaningful improvements to our model, driven by extensive research, which we believe will strengthen our strategy in navigating this challenging market environment in the coming months.