FX Alpha 13 August 2013

Complacency reigns

Despite market moving event risk in the coming weeks and months, volatilities remain at depressed levels. It is unlikely to last.

Coming into September the FX markets seem to be in a relatively sanguine mood. Consensus expectations are for Fed tapering to take place in the latter part of 2013 rather than at the September meeting. At the same time, the German election in September offers some event risk for EUR crosses, whilst the development of yields in Greece suggests the possibility of another Greek restructuring which has the potential to include official sector lenders for the first time. On the policy side the clear divergence in monetary policy between the Fed and the ECB could not be more clear, with the ECB doing all they can to keep rates low, whilst the Fed are gradually moving towards a normalization of policy, as the Fed’s Fisher hinted last week. All told it seems as though market volatilities should be set to increase.
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