Currency volatility dips to its lowest level ever

Bloomberg

Stocks may be grabbing most of the headlines, but equities aren’t the only asset class in uncharted territory.
Global currency volatility has dropped to the lowest level ever recorded. After the US and China put pen to paper on a trade deal that reaffirmed an agreement not to devalue their currencies, the JPMorgan Global FX Volatility Index is trading lower than at any point since it was created almost three decades ago.
The milestone is a culmination of a multi-year trend toward calmer currency markets, one which accelerated last year as central banks shifted to easier monetary policies in a bid to shore up growth. It’s also a phenomenon on display across major asset classes, where the resultant abundant liquidity has stoked valuations and suppressed price swings.
“The signing of the phase one trade deal has led investors to assume that a negative threat to global growth has been removed,” said Jane Foley, head of FX strategy at Rabobank.
The risk of such unprecedented low volatility “is that investors start to behave as if high-risk assets such as stocks can never go down. This would be classic bubble behaviour,” she said.
The impact of the trade-deal signing on currency markets is clearly on show in the implied volatility of the dollar-yuan currency pair: In the offshore market it’s near the lowest since China’s surprise devaluation in 2015. The day of the signing also saw the JPMorgan G7 Volatility Index close at its record low.