Exchange Rates and Markets
Currency moves ripple across commodities, equities, and crypto. Tracking FX drivers helps anticipate liquidity shifts and funding costs.
What moves exchange rates?
- Monetary policy differentials: higher relative interest rates attract capital flows, strengthening a currency.
- Trade balances: persistent surpluses support a currency; deficits require external financing.
- Risk sentiment: “safe havens” like USD, CHF, or JPY rally during global stress, while high-yield currencies weaken.
- Global USD liquidity (Eurodollar markets, swap lines) dictates availability of dollar funding worldwide.
Transmission into asset markets
- Commodities priced in USD fall when the dollar strengthens, pressuring emerging market terms of trade.
- Multinationals with foreign revenue face translation effects; FX hedges alter earnings volatility.
- Sovereign borrowing costs jump if depreciation raises inflation expectations or increases FX debt burdens.
- Crypto flows rely on dollar liquidity; stablecoin demand and BTC performance often mirror USD strength/weakness.
Why FX matters for crypto strategists
- Stablecoin pegs depend on fiat reserves; sharp FX swings stress redemption windows and arbitrage spreads.
- Perpetual swap funding rates respond to USD liquidity and short-term interest differentials.
- Exchange inflows/outflows track the strength of local currencies—capital flees weakening FX into crypto as a hedge.
- Cross-currency pairs (e.g., BTC/JPY) inherit volatility from both BTC and the underlying FX leg.
Tip: align analytics filters with fiat base currencies. Compare strategy scores in USD vs USDT vs EUR to catch FX-driven drifts.
Data to monitor
- Dollar indices (DXY, BBDXY) and cross rates (EUR/USD, USD/JPY) for broad trend cues.
- Yield spreads (2Y vs 10Y) between major economies to gauge policy divergence.
- Cross-currency basis swaps for stresses in offshore dollar funding.
- Economic calendars: CPI, payrolls, central bank meetings move FX and downstream risk assets.
Practical takeaways
- Hedge or plan for FX when your strategy realises PnL in a different base currency than your liabilities.
- Coordinate treasury swaps: convert profits across currencies during high-liquidity windows to minimise slippage.
- Set alerts for policy announcements in major economies; re-evaluate strategy exposure after surprise rate moves.
- Document FX assumptions in risk reports. Investors expect clarity on currency exposure and hedging policy.
FX volatility can outrun crypto correlations—monitor both to avoid double-counting risk or missing hidden leverage.