How Does The Fed Lead The Foreign Exchange Market Back To Its True Colors?

The main reason for the return of the foreign exchange market to high volatility is the change in monetary policy of major central banks around the world.

The US economic recovery signal makes the Fed raise interest rates even more, and the rate hike will further enhance the investment prospect of the US dollar; meanwhile, the Central Bank of Europe and Japan are trying to revive their respective economies, and their policies mainly focus on buying bonds, which usually lower interest rates and devalue the currency.

The Deutsche Bank AG data showed that in July 31st, the volatility of the foreign exchange market fell to its lowest level in 10 years, but the fluctuation rate rapidly expanded by 55% after that.

Among them, the US dollar / yen rose to its highest level in 6 years, the euro / dollar fell 1.30 for the first time since July 2013, and the Swiss Franc hit the biggest decline in 10 months and 6 months against the euro respectively.

Deutsche Bank said that the extended volatility of tracking foreign currency options rose by 45% in September to a eight month high.

Foreign exchange options are generally used to prevent exchange rate fluctuations.

The rise of the volatility indicates that fund managers are buying options because the market is expected to become more active.

An index of JPMorgan Chase & Co. shows that the G7 currency volatility has soared to its highest level since February, and for the first time since October 2013, it has surpassed the emerging economies.

Market volatility has risen from a record low of July, which is expected to bring higher profits to traders who make a daily turnover of $5 trillion and 300 billion in the foreign exchange market, because many of their pactions depend on price fluctuations.

After months of calm, the foreign exchange market has regain its vitality, and investors are trying to seize the opportunity for differences in the central bank's policy path.

More frequent volatility is what investors are willing to see.

When the exchange rate fluctuates little, many investors are unable to make profits, and the recent performance of the foreign exchange market has not disappointed traders.

The market volatility may be just the beginning.

High volatility represents a huge change in the price of money in any direction within a short period of time.

On the other hand, low volatility means that the fluctuation of exchange rate fluctuates little, but as time goes on, the price may change steadily in one direction.

Before the global central bank's big bank's loose monetary policy approaching zero interest rate, on the one hand, it made traders try to capture the enthusiasm of different currencies and frustrated the market volatility. On the other hand, low volatility also made the arbitrage pactions with obvious trend safer, and investors dared to enlarge.

Chase spreads.

For example, Australia's benchmark interest rate of 2.5% is much higher than that of the US, Europe and Japan, and the latter is a direct factor to push the Australian dollar against inflation this year. However, once the market volatility has risen sharply, many investors will begin to lift the original arbitrage position to avoid risks.

The divergence of monetary policy among major global central banks is the reason for the rise of volatility in the foreign exchange market.

The steady recovery of the US economy has made the Fed closer to raising interest rates, and the increase in interest rates will enhance the attractiveness of the US dollar.

At the same time, the Central Bank of Europe and Japan are still trying to boost their economies and rely on policies such as bond purchases, which tend to lower interest rates and devalue their currencies.

The increase in price volatility has created a profit opportunity for investors and increased the earnings of some foreign exchange hedge funds.

Parker Global Strategies LLC summarizes an index that tracks the performance of 14 leading funds. This month is expected to achieve the best returns since January 2013.

With the global central bank

The divergence led to price volatility and created profit opportunities for investors. The index continued to rise after rising 0.3% in July, and for the first time since October last year.

According to hedge fund research company, the size of the assets of the exchange fund shrank by 6.4% to 18 billion 400 million dollars in the first half of this year, compared with 20% last year, and it was closed down for FX Concepts LLC, the largest foreign exchange hedge fund in the world.

In an interview in August 28th, chief executive officer of CCTrack Solutions and Robert Savage, chief strategist of FX Concepts, said: "the situation has improved. It seems a bit reluctant to say that August is the turning point, but there is a way to make money."