FX round-up — Calm before the next storm

Olivier Desbarres
2 min readNov 18, 2021


The spike in US Treasury yield volatility last week, following the release of gangbuster US CPI-inflation data for October, partly fed through to other asset classes.

However, volatility in US asset prices, including Treasuries , the US Dollar and S&P 500, has since subsided while global FX volatility is still low in absolute and historical terms.

Depressed volatility in FX markets does not of course imply a lack of FX directionality. A number of major currencies have indeed trended higher or lower in the past fortnight.

Developed market currencies have underperformed since 1st November, depreciating about 2% versus the Dollar. By contrast a GDP-weighted basket of EM currencies (excluding Renminbi) has depreciated only 0.3% thanks partly to EM central bank policy rate hikes.

Nevertheless, within Emerging Markets currency performance has been highly differentiated, highlighting in our view the importance of domestic macro data and monetary/fiscal policies and once again the lack of currency contagion.

Notably low-volatility Asian currencies, including the high-yielding Indonesian Rupiah and Indian Rupee, are outperforming despite a lack of central bank policy rate hikes. Asian central bank FX intervention and the re-opening of a number of Asian economies to international tourism have likely played their part.

We think the Norwegian Krone, Polish Zloty and Hungarian Forint are being hampered by low central bank real policy rates and risks to Eurozone growth — a risk we had highlighted earlier this year.

The re-introduction of social distancing measures in the Eurozone, in the face of rising Covid cases, and a dovish European Central Bank could see the Euro’s slide extend in coming months, in our view.

Finally, Sterling — which has appreciated 1.7% in the past week — faces a stern retail sales data test on Friday as well as key resistance levels.

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Olivier Desbarres

Olivier Desbarres is Founder of 4X Global Research, providing substantive research and analysis on Emerging and G20 economies and fixed income markets.