Listless Currency Markets Creates Fear Among Investors
Currency markets are so lifeless that the head of European Foreign Currency Exchange sales at Nomura has turned his attention to selling bonds. Fabrizio Russo told Reuters that promoting Currency Exchange opportunities to clients is pointless because there are no big exchange rate swings that pique the interest of investors.
When markets are quiet, there is no point in calling clients. In recent weeks, there is frenzied buying of European government bonds that contrasts the slow pace of currency exchange sales. Russo’s experience is the same in dealing rooms in London where main trading takes place at $5.1 trillion-a-day FX market.
Current Volatility Index of Deutsche Bank has declined since 2017 to its lowest in four and a half years. It only stands to about 2/3 of its level in early 2019 and less than half of the peaks 3 years ago. Implied volatility gauges are embedded in option markets and reflect relative order in exchange rates. There must be no big pricing gaps in the market that provide money-making opportunities and increase the demand for hedging products.
The resistance of currency markets to shake-downs has never been more evident than on June 18 when the European Central Bank President Mario Draghi shocked the market by announcing that more rate cuts are coming. His statement sent 10-year German bond yields to record lows. French borrowing costs went below 0% for the 1st time. European shares jumped by 2%.
Will the unusual calm in the currency market end up in panic? Options show no signs of that happening but there is no shortage of political and economic uncertainties for volatility resurgence to happen. The yen is long considered a safe haven to hedge portfolios but many investors were disappointed when the yen did not rise more during December’s equity rout. The Euro which is also considered a hedge against European risks hardly responded to the recent selloffs of Italian bonds.
There are places that offer Currency Exchange before and after a trip abroad. Banks are willing to exchange currency if you are a customer with a checking or savings account. Better service is offered by online foreign currency exchange providers that guarantee the most competitive rates.