In recent weeks, the activities
in the currencies market has been relatively calm. The lack of major movements
has led posed a challenge to traders. This is because without the volatility,
it is difficult to find opportunity. This problem was amplified yesterday when
Goldman Sachs released its first quarter results. While the bank’s earnings
beat analyst forecasts, its performance in the Fixed Income Currencies and Commodities
declined by 11% in the quarter. This has seen the bank diversify its business
to consumer banking, with the launch of the Apple Card product. The chart below
shows the performance of the GBP/USD and EUR/USD pairs in recent weeks.
The reason for low volatility in
the currencies market is easy to explain. In the United States, the Federal
Reserve has said that it will not increase interest rates this year. There have
been chatter that the bank could even cut rates this year. The dovish Federal
Reserve has been met with other dovish central banks too. In Australia, the RBA
said that it will likely cut rates if the unemployment rate rises. The Reserve
Bank of New Zealand has reiterated the same.
In Europe, the ECB has said that
the negative interest rates will continue to the end of the year. This was further
than what the bank had guided previously. It had said that it will hike rates
‘at least through summer.’ In Switzerland, the SNB has been left with little
options as the Swiss Franc has strengthened in recent days. In Sweden, the
Riksbank has also abandoned the plans to hike rates. In the United Kingdom, the
Brexit drama has left the economy more exposed to downsides. The ongoing delay
in implementing Brexit has left the country at a more exposed position.
In Asia, the Bank of Japan has
struggled to tighten the monetary policy. This is because while the country’s
economy is doing well, it has not created enough inflation. With no inflation,
it means that it will be impossible for the bank to raise interest rates. The
same trend of low monetary policy has continued in other countries like South
Korea and India.
In the emerging markets, the
central bankers have been uncomfortable about raising interest rates. This is
because of the weakening of the Chinese economy. The overall global economy is
forecasted to decline this year. Therefore, central bankers in countries like
South Africa, Brazil, and Russia have been forced to leave rates unchanged. The
chart below shows the trend of the VIX indicator in the past one year.
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