Foreign exchange: Volumes and volatility benefit in currency wars
Spate of interventions boosts volumes; Emerging countries seek to stem capital inflows
Over the past month headlines using the words ‘currency wars’ have become familiar in news about the financial markets. While most of the shots that have been fired have been verbal, particularly between the main protagonists, the US and China, unilateral actions have spanned the globe.
This has manifested itself in sales of local currency, most notably by Japan in mid-September, but also by Israel, Thailand and Indonesia. Additionally, Brazil and Thailand have implemented measures to contain capital inflows, and, to some extent, South Korea, the host of the G20 meeting last month.
Add to the mix the widening of currency bands by Singapore and Russia and the surprise 25 basis point renminbi interest rate rise by China, the US mid-term elections, the Federal Open Market Committee decision on further quantitative easing, and the G20 meeting, and you have the most confused and combustible currency background seen for years.
This has led to a resurgence in trading volumes after they had tailed off during the middle months of the year, says Simon Jones, global head of e-trading at Citi.