GRAPHIC-Ukraine or not, euro volatility near 7-year low

LONDON Thu Feb 27, 2014 7:10am EST

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LONDON Feb 27 (Reuters) - A tumultuous start to 2014 for global emerging markets has put volatility back on the map for many currencies, but those in the developed world remain quiet as the grave.

With bets on a stronger run for the dollar this year still failing to materialise, the past week has seen the euro and U.S. currency trade in the tightest range since before Bear Sterns began to collapse in 2007.

That is bad news for the banks and currency platforms for whom the volumes of trade generated by major market volatility are a precondition for profit. But some argue it may also be the last moment of calm before the storm.

Euro-dollar implied vols, a gauge of how strong price swings will be, blipped higher on Thursday. The move was prompted by worries over Ukraine and the security of the European gas supplies that run through it from Russia, combined with the prospect of action on interest rates by the European Central Bank next week to spur the euro zone economy.

That last event may be more significant. If investors are to differentiate more strongly between currencies in the developed world, they will need to see some more substantial variation in interest rates, which have been around rock bottom in Europe, Japan and the United States since late 2008.

Many analysts have argued that the Federal Reserve's reining in stimulus this year, while the ECB heads in the opposite direction, may mark that change.

But for now the only gaping divide is between how much volatility has risen on currencies like the Turkish lira and Chinese yuan and how little for the euro or dollar.

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