💱Inflation Measures Behind G10FX YTD Performance: Cable FX Macro

• Data from G10FX returns vs USD, volatility, rates and macro indicators stand as of June 2025 close to represent 1H drivers. This post does not intend to show this as the only factors behind currency developments, it is only a small list of what traders usually check.

• The G10FX performance shows the dollar lagging behind significantly, with all currencies making gains. Notably, the Scandinavian currencies and the franc have achieved double-digit increases. I mentioned earlier that the dollar experienced its worst first half of the year since 1973, a period not easily traced using traditional USD index measures. The dollar's 10.8% loss in the first half was primarily due to a 16.3% gain by the SEK, followed by a 14.1% rise in the franc.

• Although U.S. officials appear unconcerned, traders and strategists suggest a fundamental shift in the dollar's structure. The decline of U.S. exceptionalism and tariff risks are driving investments away from USD-denominated assets.

• When examining traditional factors influencing currency performance, volatility and inflation have shown the strongest correlations, with inflation having the highest R^2 value. In this phase of the cycle, currencies from countries with low inflation are outperforming those from countries with high or above-target inflation. This is logical, as nations with low inflation may have more flexibility to adjust their monetary policies in response to tariff risks.