31
Aug
The need for and limitations of hedging currency risks
The Euro has risen +7%, hitting our medium-term target of 1.15, and recovering 75% of 2015’s fall. The cost of hedging US dollar positions has now hit 2.2%/year.
Key points
- The Euro has risen +7%, achieving our medium-term target of 1.15
- The Swiss franc has once again lost 75% of the appreciation caused by dropping the Euro floor
- The rise in the Swiss franc is now limited to +4.2% against the Euro, and +5% against the US dollar
- Currency risk management remains an important issue for institutional investors
- The cost of hedging depends on interest rates
- The theoretical cost of hedging stands at an average of 60% of the depreciation in the exchange rate
- Systematic hedging would cost on average 1.8% per annum for US$, and 1.2% for the Euro
- It is time to review systematic hedging strategies for international bonds
