FX volatility continues to stay at low levels. If FX rates represents the relative price of money around the world, there is little differentiation. If the factors that drive the relative price for money don't change, there will be no volatility. FX volatility is also tied to the volatility of other asset classes. The fall in volatility has matched the decline in equity volatility. If there is limited volatility in other asset classes there will be limited volatility in capital flows that move across countries.
The fall in volatility is related to the underlying volatility of the macroeconomic information. Since the foreign exchange is the relative price of money, volatility has to be related to the relative value of economic growth, inflation, etc... If there is no difference in the economic data, there will be no difference in exchange rate data. No relative surprises, no changes in FX volatility.
However, the poor data coming out of the EU relative to other countries may be a sign that there is starting to be a divergence between economic fundamentals. While not immediate, it is sign that FX volatility may start to see some changes.
The fall in volatility is related to the underlying volatility of the macroeconomic information. Since the foreign exchange is the relative price of money, volatility has to be related to the relative value of economic growth, inflation, etc... If there is no difference in the economic data, there will be no difference in exchange rate data. No relative surprises, no changes in FX volatility.
However, the poor data coming out of the EU relative to other countries may be a sign that there is starting to be a divergence between economic fundamentals. While not immediate, it is sign that FX volatility may start to see some changes.
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