Foreign exchange markets are normally described as the most efficient in the world meaning that, in theory, everything is the right price. Our job as FX analysts is to understand which factors are driving markets currently, how those factors will change and how currency markets will adjust in future. Of the myriad factors at work in currency markets right now, we chose to focus on two: i) USD funding challenges and ii) a mass exodus in portfolio flows from emerging markets. The first is the well-documented breakdown in the US Commercial Paper (CP) market, which occurred around 11/12 March. Credit risk became of ... (full story)