Volatility of Major Currencies Lowest Since 2007

JPMorgan Chase index shows volatility among G-7 currencies at 6.63 percent, vs. 27 percent in October 2008.

Volatility among major currencies fell to the lowest since 2007 as global central-bank balance sheets continue growing, driving more liquidity into financial markets, even as the economy worldwide recovers.

Australia’s dollar rose the most in almost two weeks against its U.S. counterpart before a report economists forecast will show inflation accelerated. The yuan touched a 14-month low as China’s largest manager of distressed debt said the country’s soured-loan ratio increased “significantly.” The dollar fell for the first time in eight days against a basket of peers before the Federal Reserve’s policy meeting next week.

“The water is becalmed, and here on there’s not much that’s going to change it,” Marc Chandler, the global head of currency strategy in New York at Brown Brothers Harriman & Co., said in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene and Michael McKee. “The Fed is buying more long-term assets than when they first announced QE3 in September 2012. We also know the European Central Bank and Bank of Japan may have to do more, so we’re not at the peak of the balance sheets.”

JPMorgan Chase & Co’s Group of 7 Volatility Index dropped to 6.63 percent at 5 p.m. New York time, approaching the record low of 5.73 percent reached in June 2007 and down from a record 27 percent in October 2008, shortly after the collapse of Lehman Brothers Holdings Inc.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, slipped 0.03 percent to 1,011.18 after rising 0.6 percent the prior seven sessions. The yen was little changed at 102.62 per dollar. The 18-nation shared currency rose 0.1 percent to $1.3805 and 141.66 yen.


Krona, Rand, Yuan

Sweden’s krona gained 0.3 percent against the euro, the biggest advance among major currencies, after touching its weakest level in almost two years yesterday versus the shared currency.

South Africa’s rand dropped with developing-economy currencies as Ukraine’s president urged the resumption of an offensive against militants in the east amid the collapse of an agreement with Russia to ease tensions. The rand declined 0.5 percent versus the greenback to 10.5472.

The pound rose to the strongest level in seven weeks versus the euro amid speculation Bank of England minutes tomorrow will show policy makers are moving closer to raising borrowing costs. The pound added 0.1 percent to 82.05 pence per euro after gaining to 81.98, the strongest since Feb. 28.

The yuan plunged after China Huarong Asset Management Co. Chairman Lai Xiaomin said in comments from an April 15 meeting released today that China’s bad-loan ratio increased in the first quarter amid a “grim and complicated” business environment. China’s yuan fell 0.2 percent to 6.2375 per dollar after depreciating to 6.2390 earlier today, the weakest level since February 2013. The People’s Bank of China cut the currency’s reference rate by 0.03 percent to 6.1610 per dollar, the lowest level since Sept. 10.


‘Rate Hike’

The Aussie gained versus all of its 16 major counterparts before the government releases its consumer price index tomorrow.

The trimmed mean gauge of Australian consumer prices was 2.9 percent in the first quarter from a year earlier, up from an inflation rate of 2.6 percent in the previous three months, according to the median forecast of economists in a Bloomberg News survey before the Bureau of Statistics issues the data.

The RBA said this month inflation is expected to stay consistent with its target over the next two years. The central bank reiterated in minutes published last week of its April 1 meeting that the most prudent course is likely to be a period of interest rates on hold. It targets average annual inflation of 2 percent to 3 percent.

“It doesn’t appear to me that the market is expecting a soft inflation number,” Robert Lynch, a currency strategist at HSBC Holdings Plc in New York, said of Australia in a phone interview. “It might suggest to some people that they might bring the timing for the first rate hike in the cycle a bit forward.”

The Australian dollar gained 0.4 percent to 93.67 U.S. cents after rising as much as 0.5 percent, the biggest increase since April 10.


Fed Taper

The dollar extended a drop earlier as house closings, which typically take place a month or two after a contract is signed, fell 0.2 percent to a 4.59 million annual rate, the lowest level since July 2012, the National Association of Realtors reported today in Washington. The median forecast of 75 economists surveyed by Bloomberg called for sales to slow to a 4.56 million annual rate.

U.S. house prices rose in February, with the 0.6 percent jump exceeding the median forecast for a 0.5 percent gain in a Bloomberg survey, according to data from the Federal Housing Finance Agency. It followed a revised 0.4 percent increase the prior month.

The Fed is in the process of reducing its third round of quantitative easing, in which it buys $55 billion of bonds a month, down from $85 billion last year, to support the economy. The buying has pushed the central banks’s balance sheet to a record $4.3 trillion. The central bank’s next policy meeting is April 29-30.

While the Fed pares back buying, the Bank of Japan will probably double purchases of exchange-traded funds in a second round of easing in months ahead, according to a Bloomberg survey of economists. European Central Bank President Mario Draghi said this month the central bank may ease policy to address the euro’s advance.

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