FX volatility drought clears as US dollar softens
The volatility drought in the forex markets could be over, market participants told RiskNews ' sister publication FX Week , as sustained losses in the US dollar last week brought currency pairs out of the narrow ranges they have traded since the start of the year. The euro hit $0.918 against the dollar - a seven-month high -this morning, having traded in a narrow range between $0.865 and $0.885 for most of the year so far.
"It’s been deadly dull until recently," said one trader at a US bank in New York. "But it’s looking like the dollar may have had its day."
But, he added, there are several key levels the euro must break before the dollar’s bull run can be said to be over. The first key level for the currency is $0.933, September’s high, and then $0.96. "If we break that, we will be into a new trend of dollar weakness," said the New York trader.
Other market participants urged caution. "A lot of the flows out of the dollar have been short-term speculative flows," said Will Rugg, senior currency analyst at Standard & Poor’s MMS in London. "If the real money accounts don’t kick in we’ll probably see some retracement. Euro-long positions are also a bit overcooked."
A possible end to the dollar’s near 10-year bull run comes after the market has digested concerns over corporate earnings, false accounting, and renewed fears over the size of the US current account deficit.
So far the rate of incoming foreign direct investment has been sufficient to finance the ballooning US current account deficit, said analysts. But now, said Mike Rosenberg, global head of currency research at Deutsche Bank in New York: "US yields are too low and the equity market is not performing. We have had a bigger current account deficit before, but this time spreads are too low to support incoming flows."
US Treasury Secretary Paul O’Neill added to pressure on the dollar with a testimony before the Senate Banking Committee last Wednesday alluding to the ineffectiveness of intervention in the foreign exchange markets. Dealers viewed the comments as a 'green light' to sell the dollar.
One trader at a bank in New York described the dollar’s losses as "an O’Neill-inspired dollar meltdown". But the majority of the selling came from short-term speculative accounts and dealers reported little in the way of real-money selling following the testimony.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
As risk of US Basel delay grows, Europe is in a bind over CVA
European Commission may postpone FRTB, but it’s hard to separate surgically from rest of framework
FRTB start dates must align globally, says European Commission
Lawmaker could trigger delay to market risk rules in Europe if US implementation drags on
Fed green lights more capital relief trades
Five US banks authorised to issue repeat credit-linked notes backed by financial guarantees
Basel III endgame: why moving fast might prove better for banks
Republicans are pushing for reproposal, but a rapid finalisation may prove less far-reaching
Isda pushes to ‘decouple’ Simm calibration from model changes
Emir 3.0 prompts effort to separate risk-weight revisions from methodology updates
Basel war on window-dressing may smooth liquidity, at a price
Changes to G-Sib charge could curb year-end repo volatility, but also cut balance sheet capacity
One year on, regulators still want a cure for bank runs
Broad support for higher outflow assumptions on uninsured deposits, but that won’t save insolvent banks
Watchlist and adverse media monitoring solutions 2024: market update and vendor landscape
This Chartis report updates Watchlist monitoring solutions 2022 and focuses on solutions for sanctions (name and transaction) screening and monitoring adverse media and its related elements
Most read
- As risk of US Basel delay grows, Europe is in a bind over CVA
- US large bank CRE risks could be understated, say researchers
- T+1 shift sparks dividend chaos in HK structured products