Why the Q1 risk rally was a glass half empty
Following a dramatic and volatile end to 2011, the first quarter of this year was characterised by a risk rally across a number of major currencies. The rally was driven by five key factors: improving economic expectations, as evidenced by rising purchasing managers indexes (PMIs); positioning (investors were generally underweight in early January); declining volatility, which boosted the carry trade; liquidity; and valuation.
However, as of mid-April, only two of these five drivers remain –
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