Currency market volatility continues to fall

Looking beyond whatever the Brexit saga delivers for the pound this week, we do have

some important monetary policy decisions from the US Federal Reserve on Wednesday

evening, and from the Bank of England on Thursday. Unfortunately, from a speculative point

of view, neither central bank is likely to make any change to their current benchmark rates

this week.

Having said that, at the same time the markets will surely be keeping a very close eye on the

US central bank in particular, to see if there is any slight change in their current language

and indication of future policy action. So, important as these central bank decisions are, in

all honesty they are only likely to pose as a passing distraction for the main focus (Brexit) of

the currency markets this week.

The Bank of England is perhaps more poised than the Fed when it comes to future monetary

policy, but like everyone else at the moment, they will surely want a much clearer picture of

just where the UK is going to end up before making any decisions on that front. As to

whether the ‘Old Lady’ will be in a better position to do that come the close on Friday is a

different matter. Meantime, the truth is there’s not a lot going on right now outside of

pound anyway. Consequently, the dollar is still drifting and the EURUSD is treading water

too, back inside that wretched 1.13-1.15 range that has characterised so much of the past 6

months’ trading.

The upshot is that FX volatility has fallen quite markedly over the past few weeks and could

fall further still. Average daily ranges for the G10 currencies (outside of the GBP) are

continuing to compress. However, it’s important to remember that when volatility does fall

to ultra low levels, then its usually a precursor of exactly the opposite, as and when the right

catalyst comes along of course.

Consequently, wholesale volumes are low right now and continuing to fall and that might

immediately suit the price providers, especially these days because it means all their robots

won’t blow a fuse and can easily aggregate their way out of any large trades that do come

their way. However, if volumes remain persistently low and do fall even further, then so will

the profits for both speculators and price providers alike.

This kind of drop off in activity is certainly nothing new as I’ve seen it many times over the

years, but in truth trading opportunities outside of the GBP, for non- price providers, have

actually been deteriorating for quite some time now. Naturally, this suits the authorities and

central bankers as they always dislike currency volatility anyway.

Meanwhile, it’s a question of watching and waiting for all those shoes still in mid air to drop.

Indeed, nothing has materially changed in recent weeks and the highlighted risks haven’t

exactly gone away either; they are just lurking in the back round for now. The market

reaction maybe to sleepwalk too, but eventually the cold light of day will return again as it

always does. Perhaps, by the time of my next update on Friday that might already be the


Important Economic Releases Due this Week

19/03- 12.30am Australia- RBA minutes of Latest Monetary Policy Decision

19/03- 9.30am UK February Unemployment Report

19/03- 10.00am German and Eurozone ZEW Economic Growth Survey Index

20/03- 9.30am UK February CPI, RPI and PPI Inflation report

20/03- 6.00pm US FOMC Monetary Policy Decision

(No changes expected)

21/03- 12.30am Australian February Unemployment Report

21/03- 9.30am UK February Retail Sales Report

21/03- 12.00pm Bank of England Monetary Policy Decision

(No changes expected)

22/03- 12.30pm Canadian January Retail Sales Report

22/03- 12.30pm Canadian February CPI Inflation Report