FX Volatility Ramps Up In Line with Greenback Strength
(23 April 2024 – United States) Currency market volatility is surging as geopolitical tensions and stubbornly high US inflation drives a concerted appreciation in the USD dollar.
Hedging costs in major currencies have shot up to three-month highs while a downcast Euro and Great British Pound Sterling forecast were a feature of the US Federal Reserve outlook. The EUR and GBP fell to their lowest level since November against the USD while the Japanese Yen trended further lower to a fresh low, its weakest trading level since 1990.
The impact of the strong greenback has been felt across the Pacific Ocean where the People’s Bank of China (PBoC) reiterated the need to prevent one-sided moves in the Renminbi (RMB) as a resurgent dollar and poor risk sentiment pressure currencies across Asia. The Chinese currency slid to the weakest since November on expectations the world’s second largest economy will struggle to stimulate sagging growth and the US will delay cutting interest rates.
“A key monitor of hedging changes in major currencies for April has lifted to the highest level in 2024. The latest move was triggered by Iran’s attack on Israel and follows persistently elevated US inflation data underpinning speculation the Federal Reserve will be forced to maintain hawkish monetary policy settings for longer” stated Bloomberg FX and Rates Strategist, Vassilis Karamanis.
“Even if tensions in the Middle East ease, volatility and currency hedging costs will likely stay above the multi-year lows seen earlier this year as bets on central bank policy divergence remain in place.”
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