Insights

The US dollar weakened against nearly all major currencies in July, recording only a marginal gain against the Swiss franc. Investor sentiment turned against the greenback following softer-than-expected US June labour market data and a less hawkish policy message from Federal Reserve Chair Kevin Warsh. Although renewed Middle East tensions drove oil prices sharply higher and increased inflation concerns, markets reduced expectations for a September rate hike after the Fed refrained from providing a clear signal that further tightening was imminent.

The Japanese yen also posted strong gains in the final days of the month, following intervention by Japanese authorities in the foreign exchange market, which prompted investors to unwind sizable short yen positions. Sterling and the euro both outperformed the US dollar, with sterling leading the advance after the Bank of England adopted a more hawkish tone, as three Monetary Policy Committee members voted in favour of an immediate rate increase. Gold traded in a relatively narrow range throughout the month, remaining above the $4,000 level. Despite higher oil prices and elevated inflation risks, softer US monetary policy expectations continued to provide support for the precious metal.

July was a subdued month for the IXI strategy, both in terms of investment signals and return generation. Market conditions across our traded instruments were largely range-bound, with limited directional volatility. Modest price movements were frequently reversed intraday and mean-reverting price action characterized much of the month. As a result, overall portfolio profitability remained close to breakeven throughout the period, with individual portfolio components generating small, largely offsetting returns. The resulting negative return we post for the period, is primarily due to the sharp appreciation of the Japanese yen following intervention by the Bank of Japan on 30th of July, followed by coordinated intervention with the U.S. authorities on 31st of July. Despite losses being mitigated due to the absence of a strong strategy signal and employed risk measures, the substantial yen move had an overall negative effect on profitability. We believe that the scale of the joint intervention, and its impact on the exchange rate, will alleviate pressure on the yen, at least in the short term, providing a healthier environment for our strategy, free from external, brute-force disruptions.