Tags: UBS | Super | Volatility | Exchange | Rates | 2011

UBS: ‘Super Volatility’ in Exchange Rates Likely in 2011

Wednesday, 08 Dec 2010 02:05 PM

Swings in foreign-exchange rates will surge next year as economic growth rates diverge, central bankers seek to sustain recoveries and European leaders battle a sovereign debt crisis, according to UBS AG.

Annual exchange-rate price swings may double on some major currencies, predicted strategists at UBS, the world’s second-biggest currency trader. The euro may range from $1.1 and $1.5, compared with $1.1877 to $1.4579 so far this year; and U.S. dollar may touch as low as 70 yen and high as 100 yen in 2011, two times its 80.22 to 94.99 year-to-date range, the firm said.

“The divergence between the strength in emerging markets and the unusual levels of uncertainty in the world’s major economies will cause this super volatility,” Mansoor Mohi- uddin, the Singapore-based head of global currency strategy at UBS, said in a telephone interview. “There is also high risk of policy-maker error in relation to interest rates, quantitative easing and fiscal tightening.”

UBS, the biggest currency trader after Deutsche Bank AG, said companies should increase hedges against greater swings in exchange rates. Corporations from the U.S., Japan and Europe increased the percentage of projected income protected against swings in exchange rates to a record, the most recent quarterly survey of clients by JPMorgan Chase & Co. on Oct. 1 showed.

Standard Chartered Plc, the most accurate foreign-exchange strategists, said weakness in the euro will extend into next year as the region’s sovereign-debt crisis saps economic growth.

Fed Speculation

Standard Chartered, the top overall forecaster in the six quarters ended Sept. 30 based on data compiled by Bloomberg, predicted the euro may weaken to less than $1.20 by mid-2011 from about $1.3252 today.

Just a month ago, the euro reached $1.4282, the strongest level since January, as traders sold the dollar on speculation the Federal Reserve would debase the greenback by printing more cash to purchase $600 billion of Treasuries in so-called quantitative easing. The Fed began those purchases last month.

Implied volatility on options for major exchange rates averaged 12.34 percent this year, compared with an average of 10.6 percent since January 2000, according JPMorgan Chase & Co. data. The bank’s index of three-month options touched its 2010 high of 16.95 percent in May and was at 12.49 today.

“Overall investors will have to be more aware of foreign exchange risk in 2011,” said Mohi-uddin. “For at least several more years, volatility will be structurally higher.”

© Copyright 2017 Bloomberg News. All rights reserved.

 
1Like our page
2Share
StreetTalk
Swings in foreign-exchange rates will surge next year as economic growth rates diverge, central bankers seek to sustain recoveries and European leaders battle a sovereign debt crisis, according to UBS AG.Annual exchange-rate price swings may double on some major currencies,...
UBS,Super,Volatility,Exchange,Rates,2011
398
2010-05-08
Wednesday, 08 Dec 2010 02:05 PM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved