Things are pretty calm on the currency markets. However, this peace of mind does not trust. Conventional wisdom implies that macroeconomic uncertainty should generate rather sharp movements in currency pairs.
Brexit is only a month away, while data from Europe continues to worsen while worries around Spain and Italy still prevail. The forthcoming European Parliamentary elections at the end of May are another potential source of further political uncertainty.
And with this in mind, the euro continues to trade in a range between $ 1.12 and $ 1.18. against the dollar over the last more than 70 days. Realized volatility - the measure of price movements that has happened over a period of time - is now approaching its historic bottom of 2014. "Decreased volatility will not be exactly what you expect." - says Jordan Rochester, FX strategist at Nomura.
According to Jane Foley, Rabobank's FX strategist, the lack of response to forex markets is explained by investors "believing that liquidity will continue to be abundant despite rising global risks."
The Fed has already indicated that in the short term they will not raise interest, and the ECB is still considering its next move. The National Bank of Britain may meanwhile prove to be the next candidate for policy tightening, depending on the outcome of Brexit.
"It is in a similar situation before the crisis, and then we had low interest rates, which coupled with incentives to reduce volatility." - says Foley. "There is a perception that Central Banks will find the right path again and will continue to provide the markets with the necessary liquidity."
Source: Financial Times
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