Does USD Always Sell Off At Month End?

Not at all. It really depends on the type of currency rebalancing required by portfolio managers.
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does the usd always sell off at month end
Giles Coghlan
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The USD Will Always Sell Off At Month End – Fact or Fiction?

Just on a number of questions on the feed regarding the month end U.S dollar selling. We’ve just seen also regarding the London Fix. And the question that’s being asked is should we always expect U.S dollar selling at month end?

Now the first thing is that month-end rebalancing is essentially due to money managers who are managing a portfolio of currencies or commodities and there’s certain criteria they have to ensure is always met in order to balance those portfolios.

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They’re not overexposed to any one asset. Now in this instance, investment banks had been warning that the U.S dollar selling would be likely to be found heading into month end. And that’s exactly what we’ve been seeing. We’ve been seeing that U.S dollar selling.

Now the first thing to say is month-end rebalancing doesn’t always have to involve the U.S dollar. Now we also saw some Japanese yen weakness as well. So you can see yen pairs, were moving very sharply higher and we can see the OZY Japanese yen pair, which we favored shorting.

We see your price really whipped up higher through the London Fix and due to this month-end rebalancing. So what we’ve seen is not only dollar weakness but we also saw some Japanese yen weakness. Now there’s no fundamental news for these moves.

These are purely driven by the moves in the currency space due to month-end rebalancing. And typically what happens is these moves are faded in reverse. So around five o’clock, we should start to see these moves in a normal scenario just on a fade away. So typically that’s what happens.

Another thing to mention is someone just mentioned that, does the London Fix only impact the pound? No, the London Fix, even though it’s called London Fix, can impact a number of different currencies cause it’s to do not with the fact that it’s in London. It’s to do with the fact that many investment banks and banks around 4:00 PM UK time, they just have a set time when they process a number of large currency transactions for big companies, multinationals.

Imagine you’re paying your staff, it comes to the month end. You want to convert something from euros into dollars, you’re gonna see a large amount of currency transactions. Now that could take, that could be into Australian dollars, New Zealand dollars. So we tend to see moves around different currency pairs, not just the pound.

So it goes, I hope that helps. The moves can be quite certain around month-end rebalancing and London Fix. They’re difficult to predict.

The thing to be is just to be aware of when you come in to month end, you can get month-end flows. Similarly, when you come into month end and anytime you come to the London Fix around four o’clock, you can see these sort of sharp moves that don’t last.

So typically we wouldn’t expect this move to last because there isn’t a fundamental reason for it. So OZY U.S dollar downside remains and OZY dollar Japanese yen downside remains. Any change to that, of course, we will update you and let you know.

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