Good reasons to remain bearish: Global currency expert

There remain good reasons for investors to remain bearish, according to global expert and head of currency solutions with Insight Investment, Dr Francesca Fornasari.

Outlining her firm’s position at a briefing yesterday, Fornasari pointed to the number of different shocks which had impacted markets over the past four years from the Covid-19 pandemic and the consequent record levels of support provided by central banks to, more recently, the war between Russia and Ukraine.

What is more, she pointed to the degree to which events had tended to confound some of the original predictions of the experts including activity levels remaining more resilient than expected and inflation proving much ‘stickier’.

She said growth was not slowing as much as had been expected and that inflation, particularly core inflation, was proving to be stickier than expected.

As well, Fornasari said that the impact of the aggressively higher interest rates witnessed across the world had been more muted than expected – something likely owed to lower energy prices and an excess savings buffer.

Her resultant analysis is that investors should expect interest rates to remain higher for longer with no rate cuts in 2023 across core markets.

“A significant amount of money was put to work in January on the back of the ‘goldilocks’ scenario so the pain trade in the short term is likely to be equities lower and the US dollar higher,” her analysis said.

“To us, this means that 1H23 will continue to be a very ‘mess’ period for markets and that investors should stay nimble,” Fornasari’s analysis said.

In foreign exchange terms, she suggested the US dollar had probably peaked but she could not discount a further rally occurring.