‘Volatilty’ is Back

After a series of posts on the rise of the euro earlier in the year, I’ve been relatively quiet on this front of late. This doesn’t mean that the problem has gone away. The growing feeling that the US economy was taking off certainly eased the pressure, and the euro has hovered around the low 1.20s. Now it seems that with growing awareness that growth may be slowing large scale ‘currency trading’ is coming back on the agenda.

Trading on the world’s foreign exchange markets has leapt to a record $1,900bn a day, driven by renewed interest in currencies as an asset class and the return of hedge funds specialising in currency bets.

Turnover in currency and interest rate derivatives sold by banks also soared to new record levels, according to a three-yearly survey by the Bank for International Settlements……

After slumping amid the introduction of the euro, which eliminated the currencies of some of the world’s biggest economies, trade in foreign exchange bounced back between 2001 and 2004.
Source: Financial Times

There is once more a lot of talk around about the need to float the Chinese renmimbi (which is a move which should come in gradually, but which won’t have sufficient impact to resolve the problem IMHO).

Trying to see into the future is a pretty fruitless endeavour, but we should all be aware that any sustained weakening in the yen and the US dollar would almost kneejerk style bring the issue of a rising euro straight back on the agenda. Definitely one to watch.

This entry was posted in A Fistful Of Euros, Economics: Currencies and tagged , , by Edward Hugh. Bookmark the permalink.

About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

One thought on “‘Volatilty’ is Back

  1. I notice that Goldman Sachs have advised their clients to buy – volatility contracts….perhaps pretty soon there will be a futures contract based on the volatility of the market for volatility futures