Currency chaos pushes up volatility

The dollar has fallen sharply over the last month. Momentum suggests, at least in the short term, the dollar could approach the 2004 lows against the euro, sterling and Swiss franc. The current weakness of the dollar appears to reflect two broad themes. The first is the perception in the markets that the US monetary tightening cycle is nearing an end while the European and Japanese monetary cycles have much further to go. Expected interest rate differentials have therefore narrowed, removing dollar support. The second factor is a behavioural shift in the FX market, away from participa...