BNY’s Head of Markets Macro Strategy Bob Savage notes that several current-account-surplus economies, including the Euro area, face renewed pressure from higher energy costs. Earlier in the year BNY expected these funding currencies to appreciate, but rising Oil prices now threaten to flip surpluses into deficits. iFlow shows investors adding to underheld EUR positions or hedges, reflecting concerns Europe will struggle most with energy costs.

Surplus story challenged by energy

"We have identified up to ten economies that enjoy surpluses, driven by exports of manufacturing goods."

"However, all these economies have heavy exposure to energy imports (which contributed to the development of their manufacturing industries)."

"If the experience of 2022-23 is anything to go by, many may see a switch from ample surpluses to deficits in short order if energy prices continue to rise."

"In particular, we note that European currencies such as EUR, SEK and CHF are now seeing investors adding to underheld positions or hedges, underscoring a view that this region will struggle the most with energy costs."

"Risk-off sentiment is persisting amid the ongoing conflict, but orderly equity declines and ongoing commodity price volatility are exerting less of an effect on global rates."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)