Strategic vs Tactical Currency Management

XYZ Asset Management is facing significant fluctuations in its international portfolio due to currency volatility. The firm's chief investment officer is debating whether to implement a strategic currency management approach or a tactical currency management approach.

A strategic approach would involve aligning currency exposures with long-term expectations, whereas a tactical approach would focus on short-term market movements to exploit relative mispricings in the currency markets.

Discuss the key differences between strategic and tactical currency management. In your response, consider the advantages and disadvantages of each approach, the circumstances under which each strategy is most effective, and how these strategies impact overall portfolio performance.