Risk-On, Risk-Off Returns as Driving Force of Currencies: Chart

The pattern known among currencies traders as risk-on, risk-off is back, with emerging-market exchange rates the most closely tied to moves in stocks and commodities since at least 2013. At its most potent, it can blindly split financial markets in two -- categorizing everything from the dollar to the dong as either a haven or a “risk asset” and dictating how they move in response to news or events, regardless of the fundamentals. The relationships came to the fore in the wake of the 2008 financial crisis, and are now strengthening again as investors prepare for a multitude of challenges, from next month’s U.K. referendum on European Union membership and Federal Reserve meeting to the U.S. election in November.

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