Two factors have long framed how investors think about the outlook for financial markets: real economic growth and inflation.

Exchange rates have been important, but less fundamental and usually thought of as simply notable aftereffects of trade dynamics, money flows and central bank policies. Times have changed.

Foreign currency exposure, known as FX, is no longer a simple numéraire that can be hedged away or ignored; it has become an integral endogenous, and potentially a driving, force of our economic and financial systems.

PIMCO has described The New Neutral for the global economy for years to come in which tepid growth and inflation lead to low levels of interest rates, including policy rates, even as the business cycle advances. In the past, when real GDP and inflation were globally higher, nominal GDP could absorb a lot of the inherent FX volatility. In The New Neutral, FX considerations will weigh disproportionally on the investment climate and opportunities. Indeed, currencies are not less volatile than they used to be.

The first chart illustrates our unusual situation in which sharp movements in currency values can plunge global nominal GDP into negative territory, even though global real GDP and inflation are positive. In this case, global nominal GDP growth measured in U.S. dollars (USD) becomes negative.