G10 FX Seasonality: Count us skeptics – Goldman Sachs
Analysts at Goldman Sachs, suggest that many FX market participants believe that some currencies display seasonal behavior, weakening in some months but strengthening in others. Usually, the story goes, these patterns are related to large portfolio ﬂows around key dates in the corporate or ﬁscal calendar, they further add.
“Traditionally, this has been especially prevalent in discussions about EUR, which in the past did in fact tend to strengthen towards the end of the calendar year and subsequently weaken at the beginning of the following year.”
“But G10 FX markets are large, liquid and forward-looking, so at least in theory seasonal patterns should not persist. We test this idea using actual market return data and ﬁnd that economic theory generally holds true: there is little evidence of seasonal patterns in G10 FX markets on a monthly basis. Moreover, given the large number of FX crosses, it is actually probable to see one of them go on this kind of “lucky streak” from time to time.”
“It is therefore perhaps not surprising to see that this supposedly reliable pattern for the Euro has faded away in the last decade. Debates about seasonality are currently relevant for EUR/SEK, where market participants rationalize recent SEK weakness with a supposed seasonal bias and expect it to reverse in January. It appears instead that EUR/SEK moves can be well-explained by two consecutive inﬂation misses.”