The past week was flooded by another wave of divergence between the commodity and safe-haven currencies, with many important fundamental releases drowning in persistent trends of the observed indexes. The Aussie’s, the Kiwi’s, and the Loonie’s gauges formed the top three performers, ending the week with 1-2% growth, while the franc’s, the Euro’s, and the yen’s indexes mirrored the results in the depreciation area. Still, the trends reversed on Friday and suffered an even sharper correction at the new week’s Asian open, and the period’s key event in this respect was the OPEC summit in Doha. At first the pre-summit caution forced the commodity currencies to pull back, with the oil-driven CAD Index losing over 0.5%, while the yen’s and the Euro’s measures picked up. Later the movement was sharpened as no deal was reached on the oil production freeze, and the indexes opened the new week 0.5-1% away from their Friday’s levels. Globally, the Loonie’s gauge went as far as dropping below the baseline, while other indexes managed to keep their relative positions.
The market’s and the US dollar’s volatility continued to grow in the past week. Thus the portion of elevated volatility for the Greenback stood at 42%, while the market’s index spent almost a half of the period above the two-week average. Level-wise, the dollar was largely underturbulent compared to the market, holding its volatility measure below the composite index for a notable part of the week. The dollar’s peer currencies were also rather turbulent. The Aussie became the least stable currency, spending 54% of the period above the 1-point level, while the most tranquil Loonie posted the reading of over 35%.
During the week the correlations of the USD pairs were on or even above their average historical levels, though the post-OPEC start of the new trading week brought new losses for the oil and the associated currencies, bringing the components with the commodity currencies and the safe-haven yen to significantly negative values, and resulting in a low 0.1 level for the USD composite. Thus the Asia-Pacific currencies remained the main market drivers, while the dollar and the European currencies stayed on the weakest positions in terms of their significance. The pound was the only exception, as several notable releases such as surprisingly high CPI and rate decision pushed its composite above the 0.5 level.
Last period the Canadian Dollar was one of the most volatile currencies across the board, driven mainly by oil price developments in the wake of crucial output talks in Doha, Qatar. However, the fundamental front has been rich as well. The events included the Bank of Canada’s monetary policy meeting, speeches among various officials and core statistical data. The currency recovered from weekly lows and closed the period with a 0.30% gain against its peers. Australian and New Zealand dollars spiked even more by 1.19% and 1.12%, respectively, amid a positive impact provided by commodities. In the meantime, safe havens were complete outsiders last week.
Despite the most considerable movements of the Canadian Dollar in the early morning on Monday, April 18, this currency’s highest volatility reading was registered on another day of the period. Possibly, central bank events continue weighing on FX pricing more than ever before, thereby generating uplifted turbulence. All in all, the Loonie was volatile in 43% of the whole period’s time, i.e. when the CAD Volatility Index hovered above the 1.00 mark. Only the GBP/CAD component used to be much less volatile than others with 33%, owing to relative calmness of the Sterling in present times and notwithstanding the upcoming referendum on UK’s EU membership.
Significance of the Canadian Dollar was on the rise throughout the vast part of the period we are looking at. Despite that, red correlations of some particular components were not entirely avoided, which led to longer tails of their distributions. The mean correlation coefficient was 0.55 points, which can be considered a very respectable reading. This is because the 20-working day average was 0.50 points, while annual average correlations between all crosses of the Canadian Dollar were as low as only 0.45 points. With a traditionally high number of events taking place worldwide, CAD was in power to remain united in its previous week’s movements.
The past period was a dynamic one for the observed currencies, packed with wide moves and direction changes. The broadest downslide was suffered by the Frank gauge on Wednesday. Another impressive plunge happened to the USD Index. The dollar remained broadly lower since major oil producers failed to reach an agreement on an output freeze. Meanwhile, a meeting of the world’s major oil producers in Doha, Qatar on Sunday ended without an agreement on curbing production intended to prop up prices. The JPY Index was one more gauge to go through a sharp fall, as it lost -0.37% points in half an hour on the UK CPI data released on Tuesday.
Despite great activity observed in the currency indexes, the past period was not particularly remarkable volatility-wise. Thus, the over turbulence portions stood close to 38% and most of the average indexes’ values were below 0.85 points. Nevertheless, there were four currencies that drove their volatility measures above the 2 points line. The major spike happened on Thursday, when the pound, euro and the kiwi reacted spiked sharply on different news. The New Zealand’s dollar dipped to a ten-month high due to major commodity prices decline. Meanwhile, Sterling, in turn, managed to book significant gains, as negative sentiment affected by unsatisfying UK retail sales was cancelled due to improved support for the campaign to stay within the EU. The single European currency surged on announcement that the ECB left the main refinancing rate at 0.0%, while the deposit rate was preserved at -0.4% and the marginal lending facility, in turn, remained at 0.25%.
During the first four days of the observed period the significance measure of the Euro followed a descending pattern, as there were no economic releases from the Euro zone that could notably influence the bonds between the single currency’s pairs. Thus, the distributions of the correlations between the most traded pair and its EUR counterparts were significantly skewed towards the zero level. However, the period was associated with several notable spikes of other currencies’ significance, which followed the news from different regions.
The past period was notable for a clear separation of the observed indexes into leaders and losers, and their persistence in the chosen direction. Thus, the commodity currencies, which dropped in the early post-OPEC Asian session, strengthened their positions above the baseline against the background of rebounding oil prices. The Loonie’s measure got an additional push from optimistic retail and inflation data released on Friday and posted the period’s greatest gain. Meanwhile, its Pacific counterparts lost the momentum, and the pound pulled ahead, bolstered by the ECB and another wave of “Brexit” debates. In the negative area, stabilization of oil prices coupled with the BoJ report on expanding negative interest rate policy made the safe-haven yen the worst-performing currency with almost 4% loss of its index.
After a few rather turbulent weeks, the past period saw a relative decrease in volatility of almost all observed currencies. The most dramatic change happened to the previous week’s most volatile currency, the Aussie, which lost 32% off its overturbulence portion and posted the lowest reading. The Greenback was the second calmest, with all other currencies holding their volatility index above the two-week average for more than 30% of time. The yen and the Swedish krona became the period’s most volatile currencies, as their elevated volatility portions were slightly over 40%.
The dollar’s correlation composite lost 0.05 points off its average, heavily affected by the results of the OPEC meeting and the yen’s downslide. Mean values of the USD/EUR components remained largely unchanged, mostly due to their distributions spreading wide from long-term highs to long-term lows. A notable exception was the pairs bond with USD/JPY, which spent the week on feeble levels and even fell below zero on Thursday, causing its average to lose over 0.2 points from the previous reading. Meanwhile, the yen’s measure was the undisputable leader of the period, posting an average of 0.74 and the high of 0.90 points.
With fairly improving expectations on the issue of the upcoming EU referendum in Britain, the largely politics-driven Sterling has been able to extend a rebound to another five-day period ended April 26. Along with Canadian Dollar, US Dollar and Swedish Krona the Pound hovered above the base line and finished the week with growth. On the other hand, the Yen continued to depreciate amid higher risk-on sentiment and rumours the Bank of Japan is ready to offer loans to commercial banks with a negative rate of interest. Now JPY is up by only 0.17% month-on-month, following a massive 1.57% drop it has posted over the observed period.
In line with past experience, the topmost market volatility was registered over the first part of the researched period, given that week-ends are normally bringing many events in the economic calendar. Pound’s attractiveness rose substantially after encouraging political remarks made by officials that, as analysts are projecting, may curb the probability of Brexit. GBP was more turbulent than the market overall, with Sterling’s elevated volatility standing at 29% versus market’s 24%. GBP/SEK was the most unstable cross owing to Swedish Krona’s own behaviour in the wake of speculations that Sveriges Riksbank may cut interest rates further, if necessary.
Significance of the observed currency can be divided into two parts. From Wednesday until Friday we saw much weaker correlations among various currency pairs, which include the Pound, than over Monday-Tuesday of the new week. Such conditions helped the average GBP correlation coefficient to soar up to 0.52 points and outweigh the 20-day mean of 0.47, 130-day mean of 0.43 and annual average of only 0.40 points. Hardly any component has ever slipped below zero, even though correlations of close to zero were widespread.
The past period was hugely successful for the British pound. Spending the whole period above 101 level, the GBP Index surged to 102 on Wednesday ahead of the UK’s first quarter GDP announcement, however than, started to decline gradually. Meanwhile, UK GDP is 0.4% quarter-on-quarter compared to the 0.6% readings in the last quarter of 2015, while the yearly change stayed at 2.1%. Even the eased Brexit risks did not manage to support the currency. From there on, the Index held well above the baseline and maintained the leading position. The week was much less fortunate for the Asia-Pacific currencies and the European currency.
Market volatility evolved in an ordinary pattern during the week, showing moderate turbulence during the European trading session and decreasing overnight. The most changeable and thus the most volatile was the Pound, whose index spent 39% of time above the 1.5 point level. The Swedish Krona, in turn, was the most tranquil in terms of elevated volatility portion, though its index spiked notably several times. The most conspicuous surge of the market volatility was observed on Thursday – the dollar dropped against the other major currencies since the Federal Reserve left interest rates unchanged, in line with expectations.
The Euro’s significance measure covered the whole spectrum of its historical values in the past period, with the higher readings affected greatly by the Fed as well as BoJ decisions. On Thursday, the Federal Reserve left interest rates unchanged, as expected, giving little indications on future policy moves. On the other hand, the yen strengthened significantly, afterthe Bank of Japan kept the deposit rateat minus 0.1% while asset purchases, in turn, at 80 trillion per year. also pushing back the expected data for reaching its 2% inflation target.
The main market drivers of the past week were the central banks, with their decisions or expectations of thereof causing a number of sharp reactions from the observed indexes. The first such response came on early Wednesday, when weak CPI numbers increased the odds of a rate cut from the RBA and pushed the Aussie’s gauge to tumble below 99.0 points. The blow proved to have a long-lasting effect, as the index continued to weaken till the end of the period, ultimately posting the week’s greatest loss of 3%. The next Asian session brought next major moves, this time seeing the concerned indexes shoot up. First, as the RBNZ restated its readiness to introduce further easing, but left rates unchanged and voiced expectations of strengthening in inflation, the Kiwi’s measure jumped above its peers to 100.8 points and held around the +0.5% line for the rest of the week. A few hours later the BoJ surprised the market by refusing to add new easing measures to its policy, and the JPY Index surged 2 points, setting off a sharp uptrend and finishing the week with a 3.4% gain.
Volatility on the market remained largely subdued, as the overturbulence measure barely rose to one third, even with the big moves on Wednesday and Thursday. The week’s most active currency was the pound, which posted 38% of elevated volatility, with the Greenback’s 34% reading as the second highest. Meanwhile, the highest peaks were reached by the yen’s, the Kiwi’s, and the Aussie’s turbulence gauges, which spiked to 10.6, 5.9 and 5.2 points at the respective interest rate announcements for the two former indexes and disappointing CPI release for the latter. The rest of the currencies stayed relatively insensitive to the domestic economic releases and reached their highest activity peaks against the background of the previously mentioned events.
In its average readings, the dollar’s significance was little changed from the previous week, with the aggregate and the USD/EUR components all posting values in line with monthly readings. Thus the Greenback’s composite mean added 0.05 points on the previous week’s results and stood 0.01 above its monthly value. The average values of the USD/EUR components also stayed mostly unchanged, deviating for 0.01-0.05 points from the previous readings. The only exception was the USD/EUR-USD/JPY component, which gained 0.22 points as the pairs’ bond returned to being moderately positive. Other USD/JPY components also recovered after a fall into the negative area in the previous week and spent the second half of the period showing strongly positive values.
Australian Dollar and Japanese Yen are possibly the only two major currencies that are worth being discussed throughout this overview. The former had been the purest loser of the period ended May 3, while the latter continued to register massive value gains. AUD was hit twice, firstly after disappointing inflation figures and secondly in the wake of the RBA’s decision to cut interest rates. In the meantime, hawkish Bank of Japan sent the Yen higher on April 28, as this central bank refrained from adding easing on the monetary policy side despite the most recent pan-market appreciation of JPY.
Very rarely the volatility indices of any currencies are climbing significantly beyond 2-3 points on the scale of the main Volatility chart. However, unexpected central bank events seem to be destroying this stereotype, because they manage to substantially move the markets and influence their behaviour. Besides central banks, however, hard data may also put pressure on the sentiment. This is exactly the case of the Aussie over the last week. Even though the elevated volatility was below the market average at 0.41 points, there are turbulence spikes worth paying attention to. Meanwhile, the most volatile crosses were AUD/NZD and AUD/CAD amid wide fluctuations of energy prices.
Over at least 20 months AUD significance levels have never reached the area that is located so close to the upper bound of 1.00 for the composite. It seems that inflation numbers and the RBA interest rate decision have magically managed to greatly unite different crosses of AUD, as at that moment in time they were quite confident that the only way is to sell this currency. Owing to that, the mean correlation coefficient for the whole April 27-May 3 period rose to the 0.63 level, much above 0.56-0.58 averages that are seen on different historical time frames. As for distributions, particularly the AUD/USD & AUD/JPY component created a long tail amid divergence between US and some of Asia/Pacific currencies.
The past five days were positive for Euro, and its currency index remained in a range of 100-101.87 throughout the period. Friday was calm for almost all observed currencies, and the Euro index experienced a slight increase against its peers as the macro calendar unveiled mostly disappointed economic updates, namely the final University of Michigan confidence survey and the Chicago PMI in April. Also, Tuesday was marked by the strong divergence among currencies, namely commodity currencies as well as pound dropped sharply due to lower oil prices as well as economic data.
The past week, as opposite to the previous one with its high portion of elevated volatility, was quite calm, and the percent of the exceeded EUR/USD volatility index came back to its usual level. The same tranquility was observed in all the other observed currency pairs, marking the period as a generally calm one. It is also supported by the maximal values of the volatility indices, which were not distinctive and held on their usual levels of about 2-3 except for EUR/AUD since the pair’s volatility soared 8.24 mark.
The currency significance measure spent most of the period on a feebly negative level, mostly fueled by the correlations between EUR/USD and the Euro crosses with JPY, AUD, CAD, CHF, and GBP. The European crosses, in turn, showed little to no synchronicity in their movements. Their correlations ranged from strongly positive to strongly negative, with little impact to the overall picture. That being said, the general tint of the relationships between the currency pairs during the period offered no revelations, as all values were well in their average historical limits.
The past week proved to be another period of weak commodity currencies, though this time the oil prices were not the main driving force behind the descend. The RBA’s decision to cut interest rate managed the Aussie’s gauge to tumble below 99.0 points on Tuesday, and the monetary policy statement released on Friday pushed the index lower still, putting the Aussie in the main loser’s position. The Loonie’s measure finished the week slightly above its Pacific counterpart, but still posted a more than 1.5% loss, despite the good unemployment and PMI releases on Friday.
Volatility edged down from the previous week’s moderate levels, with the dollar’s overturbulence portion being the only one to reach the usual level of one third. The pound’s and the Loonie’s reading’s were close behind, falling just a few tenths short of the 30% mark. Somewhat uncharacteristically, the lowest elevated volatility portion was posted by the yen, whose index reached above its two-week average in less than 15% of the time. Meanwhile, the most turbulent dollar’s pairs were the ones with its European peers - USD/CHF, EUR/USD, and GBP/USD, all showing elevated volatility of 40% or more.
The past week was marked by relative strength of the Greenback’s significance measure, with several ups-and-downs holding it in a range of 0.30 to 0.65, all above the significance threshold. The mean of the composite edge higher once more, adding 0.07 points to the previous readings, with most of the USD/EUR components’ averages showing the same tendency and gaining 0.02-0.20 points. The only exception was the pair’s bond with USD/AUD, which lost 0.05 points from the previous week’s value. The sharp falls of the Aussie’s Currency Index on Tuesday and Friday pushed the USD/AUD components down, and its correlations with USD/JPY went as far as dropping into the negative area.
Canadian Dollar used to be a mixed performer over the weekly period ended on Tuesday, May 10. Despite that, overall this currency was tilted mainly to the south, as the CAD Index spent more than 90% of all time below the base line. The only currency, which seems to have had some clear direction, was the US Dollar. Data from America was released mostly on a daily basis, thereby helping the Greenback in establishing a distinct uptrend from the very beginning of last Wednesday. USD Index gained 1.55% over the week, followed by the Pound at +0.89%. Canadian currency, however, joined both save havens and other commodity currencies to lose 22 basis points.
Markets were hardly turbulent amid a clear lack of fundamental data releases from the majority of regions but the US. Only in 18% of all time the whole market posted volatility readings of above one point, which means there was some uplifted activity taking place. Canadian Dollar, however, was slightly more turbulent at 22% of all time of the period. As expected, USD/CAD was the most energized component with the elevated volatility marker at 44%, helped by presence of crucial US employment statistics for April and various speeches by members of the FOMC Committee. GBP/CAD followed with an elevated volatility percentage of 35%.
Significance of the researched currency fell below the levels seen, on average, over the previous month and over the last six months. Measured by the average correlation coefficient, which itself is derived from mean correlations between various currency pairs, CAD significance was 0.49 points over the week through May 10. Classically, those components, which include the Aussie and Kiwi, slumped strongly below zero at some point of time, therefore sending the composite much lower and prolonging the respective distribution tails, as showed on the chart below.
Euro was one of the best performers last week. It came virtually in pair with Great Britain Pound and Swiss Franc and was surpassed only by the greenback. All of the other currency indices lagged at least 0.3% behind the Euro. From the very beginning Euro index showed strong commitment to be among the best performers in the period. It ended Friday 0.5% above the base adding additional 0.35% on Monday. However, apart from top performers there were also several weak currencies, namely commodity currencies (Australian dollar, New Zealand dollar, Japanese yen). Meanwhile, the monthly change indicates that the Euro index only gained slightly more than half a percent over those values.
Levels of volatility remained rather moderate. Elevated volatility above the usual (long term value; 1.0 in the index scale) is being observed in 23%, or more, of the time in a clear majority of the cases (market and individual currency pairs). In addition, average volatility is at 80 to 100% of the long term level. Highlight of the period, in terms of volatility, as anticipated, was observed on Friday. We saw 2 peaks in market volatility (1.75 and 1.35 times higher than the usual level). First one is attributable to the announcement that the US economy created less jobs than expected in April.
Levels of volatility remained rather moderate. Elevated volatility above the usual (long term value; 1.0 in the index scale) is being observed in 23%, or more, of the time in a clear majority of the cases (market and individual currency pairs). In addition, average volatility is at 80 to 100% of the long term level. Highlight of the period, in terms of volatility, as anticipated, was observed on Friday. We saw 2 peaks in market volatility (1.75 and 1.35 times higher than the usual level). First one is attributable to the announcement that the US economy created less jobs than expected in April.
While the range of the observed moves notably narrowed from the previous week, some indexes still managed to deviate from the tightly-packed majority. The most prominent of such exceptions was the yen’s gauge, which opened the period by dropping more than 0.5% below the baseline after the BoJ minutes weighted on inflation target, backing the negative rate policy. On Tuesday, the downslide was further supported by the Finance Minister Aso’s warning about an intervention that could come if the yen continues to strengthen. Afterwards, however, the JPY Index went back to being governed by the investors’ risk appetite and rejoined its peers. The Kiwi’s gauge followed on a similar pattern, falling throughout the first two days of the period and recovering later in the week. The index was hit by the Finance Minister’s comments on employing macroprudential tools to fight strength of the housing market , but shot up after the RBNZ report gave no indication of such measures.
As suggested by the currency indexes, volatility on the market was rather subdued, with most of the overturbulence portions standing below 20%. The only exceptions were the Greenback and the franc, whose volatility indexes held above the two-week average in about 21% of the time. The Kiwi’s gauge, in turn, should be marked out for reaching the highest peak. As the RBNZ report and governor’s speech pushed the currency up, its turbulence measure surged to the 2.82 mark, with the NZD/USD index reaching the 3-point level. Maximum values of other observed composite indexes were around 1.5, while the market’s high stood only at 1.21.
It was a calm week for the Greenback as the Aussie, the Kiwi and the yen were being the main market drivers. Their composites were fluctuating around the 0.65 points level throughout the period and reached as high as 0.80 against the background of RBNZ Wheeler’s speech and inflation expectations report from Australia. The European currencies, in turn, took the weakest positions in terms of their significance that week.
Although the Pound Sterling Index was moving below the base line over the vast part of the period ended May 17, by the last day of it this currency managed to regain quite enough strength to close with an increase of 0.38%. Generally, movements and volatility of the market were boring and low, which contributed to relatively small changes of all components during the past five working days. The highest rise, posted by the Japanese Yen, amounted to only 0.62%, while the biggest loser of the period, the Swedish Krona, failed to even surpass the one percentage point mark.
While the Sterling’s highest weekly turbulence has been observed back on Thursday of the previous week in time of the BOE monetary policy report, the market has been the most volatile a day later. This is when the US published a bunch of data that covered retail sales and producer prices in April, as well as the University of Michigan’s consumer confidence index for May. Overall, the market was tranquil and the elevated volatility stood at only 10%; however, the Pound volatility rose to 13%. Several components posted much sharper than average readings of turbulence. EUR/GBP approached 24% amid large presence of EU data over the period.
Significance of the researched currency fell much below the multi-month average reading over the defined five-day period. Even domestic British data failed to provide the national currency with broadly needed common impetus in order to raise the level of unanimity across the board. The mean correlation coefficient averaged only 0.36 points from Wednesday till Tuesday, down from the monthly mean of 0.44 points. Commodity currencies shaped one of the least correlated components, with GBP/USD & GBP/AUD’s average indicator standing at only 0.07 points.
Compared to the period ending on May 13, the EUR Index showed a similar result of close to no change over the five trading days, albeit spent considerably more time below the baseline. The index long-term changes remained unsettled, as monthly progress exceeded zero after the previous reading of –0.59, while yearly decrease deepened from –0.01 to –0.67. The Euro depreciated against five out of nine observed peers, most notably the pound and the dollar, which gained more than 1% and 2% over the single currency. The only currency to lose as much against the Euro was the Krona that tumbled down at the end of the period.
With the turbulence of the previous week’s events almost out of the sample, volatility notably subsided in the past period, and both peak highs and portions of over turbulence generally decreased. The Euro with its 24% of elevated volatility was the second calmest currency after the Swedish krona, and one of three currencies that ended up with their average volatility index values below one. In terms of volatility index levels, the past period was quite tranquil one for the single currency since late March. The EUR Volatility Index spent almost the whole period below the turbulence gauge of the market, exceeding it only with the currency’s dips against its peers.
The single currency’s significance measure was showing a mixed trend during the past week. However, the movement was smooth, but the composite still had a few ups-and-downs and ranged from 0.10 to 0.28 points. Nonetheless, averages of the composite and its EUR/USD components were almost in row with the previous week’s values. The most notable changes occurred in EUR/USD correlations with EUR/SEK (-0.08 points).
The British pound became the undisputed leader of the previous week. While its peers fluctuated in the range between -1.2% and +1%, the GBP Index experienced an almost 3% growth, fueled by the Brexit poll data release. At the end of the week, however, there was a slight decline, and the measure entered the new period at 101.7 mark. The Kiwi’s and the Greenback’s gauges shared the second best position, as they spent Friday entwined and ultimately posted 0.7% and 0.6% gains, respectively. All the other indexes, in turn, spent the last two days of the week in the depreciation area, finishing with 0.2-1.1% losses.
Turbulence on the market continued to fade, with the aggregate portion of elevated volatility losing 5% from the previous readings. The dollar, whose currency index moved on a slow uptrend throughout the period, showed only 12% of overturbulence and with even that found itself among the most volatile currencies. The yen spent 1% of time above the baseline, becoming the least volatile of the observed currencies. The most turbulent currency was the UK pound, which was affected by another wave of Brexit-related news and posted 25% of elevated volatility. Meanwhile, the Aussie and the Greenback became the leaders in terms of height of the volatility peaks, as their measures exceeded the 2.5 level at the time of the RBA meeting’s and FOMC minutes reports, respectively.
The dollar’s correlation composite held on moderate levels between 0.3 and 0.5 points, and managed to lift the week’s average above the 0.4 mark only with the surge that happened on Wednesday. Among the USD/EUR components, the bond with USD/AUD was the only one to post a growth in its mean value, attributable to the strengthening of the relationship in the second half of the week. The pair’s mean correlation with USD/GBP, in turn, suffered a 0.2 points loss, as the individual values stayed almost entirely below the monthly average during the week. The pound itself showed exceptional results in terms of its significance, pushing its composite above the 0.6 mark and into the top position with its surge on Wednesday. Another noteworthy uplift was observed on Tuesday, when the Aussie’s jump caused its composite to spike to 0.9 points—the absolute high of the week.
The Pound Sterling was the undoubted leader of the five-day period ended May 24. Even though some losses were in place, especially by the end of the last calendar week, the GBP Index continued to hover strongly above its G9 peers. Tuesday’s spike has widened the advantage of the UK currency over the others and particularly the US Dollar, which came second in the race. The Buck soared on Wednesday, following the minutes of the Federal Reserve System, but stabilised later in the period to finish it with an increase of 0.9%. The Kiwi and Swedish Krona have also closed above the base line, at +0.25% and +0.10%, respectively.
Considering the Pound’s overall activity during the whole researched time period, its volatility was set to become unsurprisingly the highest among all major currencies. Turbulent trading was observed throughout each and every working day, which pushed the elevated volatility indicator to 38%, way above the market’s average of only 22%. The Sterling crosses with the Euro and Swedish Krona turned to be the most unstable, as the upcoming UK referendum on the membership in the EU is considerably weighing on performance of Pound’s mainland European peers. Adding to that, some European statistical events were dominant on May 18, May 23 and May 24.
The observed currency’s average significance was extremely high from the historical perspective, given that correlations of various Pound’s crosses averaged 0.63 points. This is way above the 0.47 points’ marker showed as the previous month’s average and even more significant than 6-month or annual means of 0.44 and 0.40, accordingly. The Sterling’s pairs were surprisingly brought together in their weekly developments due to a broad range of unifying factors, which in turn resulted in quite shorts tails for the majority of components’ distributions.
Most of the observed currencies started the past week with a negative movement and kept to it until the middle of the period. The situation changed on Tuesday, when losers slowly began to move up, while gainers posted a negative movement. The exceptions were the Krona and Dollar, which were above the base level throughout the whole period. Some currencies, including the single European currency, dropped just after the German first quarter GDP announcement, which came out at 0.7%, while the yearly change slowed from 2.1% to 1.3%. Moreover, the economic sentiment for May moderated from 11.2 to 6.4.
The period was marked by moderate volatility, with both market and the most traded currency pair’s volatility indices demonstrating close-to-average values. The same situation was observed in other major currency pairs. The most influential event of the week was the G7 meeting, since all the pairs showed maximal volatility of the week against the background of this event. Friday and Monday both were rather tranquil in terms of market reaction to news. Germany’s and Canada’s Consumer index did not cause noticeable turbulence on the market. Tuesday morning, on the other hand, was full of news reflected in pairs’ volatility.
The Euro significance measure remained changeable and moderate, but nevertheless stood somewhat superior to the previous period’s picture. The components cut their lower tails shorter and shifted closer to higher levels, with most mean correlations strengthening both over previous and longer-term values. The most remarkable changes occurred in EUR/USD correlations with EUR/CAD, whose average values rested well 0.1 for the past month, but now reached above 0.4.
The British pound retained the leading position for the second week in a row. Nevertheless, the gap between the pound and its peers has narrowed, and GBP Index showed only a 1.38% gain. Meanwhile, after the BoC interest rate decision, the Loonie became the second best performer with a 0.92% growth, thus taking the Kiwi’s place, which fell down to show the worst result of the period. The NZD Index’s sporadic movements were caused by the Fonterra milk prices’ forecast as well as Bill English’s statement on the housing market, and the gauge ultimately ended the period with a 1% loss. Notably, almost all indexes spent the past week below the baseline, posting 0.12-1.00% losses.
After several weeks of tranquility, volatility on the market picked up 9%, but still remained below the one-third level. The most active currency was once again the British pound, even though it lost 5% from the previous reading. The most notable rises of elevated volatility portion was observed in the Kiwi’s and the yen’s gauges, whose readings increased by 12% and 15%, respectively. The jump of the yen’s volatility took place against the background of the G7 meeting at Ise-Shima. Meanwhile, USD/CAD was the leader among the dollar’s pairs in terms of the maximum volatility level, as it jumped with the mix of the BoC rate statement and the good news for the Greenback on Thursday.
The strong growth of the British pound caused the weakening of the most of the USD significance measure components containing USD/GBP. Moreover, some of them even dropped to the negative area. Thus the pair’s component with USD/JPY posted negative values for more than 70% of the period. The mean correlation between USD/GBP and USD/EUR has weakened by 0.28 points compared with the previous week’s readings. Among the USD/EUR components, the bond with USD/JPY was the only one to show a growth in the average value. The mean of the Greenback’s significance measure, in turn, also has declined comparing with the previous value.
While remaining in a fairly narrow range, the observed indexes still managed to show some impressively sharp moves in the past five trading days. The most notable in this respect was the GBP Index, which surged on May 25 and tumbled on May 31 as the Brexit polls swayed between Remain and Leave. The Kiwis gauge was similarly active, first losing over one point and hitting the weeks low on Fonterras disappointing milk price estimate, and then rapidly climbing all the way to the second best performers position, with the move triggered by rises in building approvals and business confidence. In the end, it was outshined only by its Australian counterpart, which surged earlier the same day after the reports of narrowing current account deficit and better-than-expected building permits.
The portion of overturbulence on the market picked up a few more points, showing marginal improvement from the tranquil beginning of the month. Unsurprisingly, most of the volatility came from the pound, which was strongly influenced by the changing Brexit sentiment and suffered a 40% portion of elevated volatility. It also posted the highest peak of the volatility index, which spiked to 3.08 as the currency tumbled on Tuesday. The day saw two more turbulence measures reach above the 2.50 line the francs index, which soared with the mix of the pounds move and the Swiss currencys own dip amid strengthening in the Asia-Pacific currencies, and the AUD measure that was pushed up by the Aussies late night surge.
The Loonies correlation composite put its average slightly above the long-time readings, reflecting the relative strength of the Canadians position across the board. The CAD/USD components held mostly at or above their monthly medians, with the pairs bond with CAD/AUD being the most notable exception. Still, even as the component reached far into the negative area, the strong positive values prevailed, and its average climbed closer to the significance threshold than any of the long-term readings. Meanwhile, CAD/USD correlation with CAD/JPY was the only one to average below the long-term values. The component showed no extreme values, but remained largely subdued throughout the period.
