Bloomberg News

Currency Volatility Falls to Lowest Since 2008 on Growth

February 24, 2012

(Updates prices beginning in the second paragraph.)

Feb. 23 (Bloomberg) -- Volatility of currencies of Group of Seven nations fell to lowest level since August 2008 amid optimism the global economy is improving, giving investors more confidence to buy assets that appreciate in periods of growth.

Implied volatility of three-month options on Group of Seven currencies as tracked by the JPMorgan G7 Volatility Index fell as low as 9.76 percent today, the least since Aug. 8, 2008, as options traders scale back risk of large exchange rate swings. Lower volatility makes investments in currencies with higher benchmark lending rates more attractive because the risk in such trades is that market moves will erase profits.

The dollar and the Japanese yen added to losses against a majority of their major counterparts today after reports showed U.S. jobless claims held at a four-year low and German business confidence rose to the highest level in seven months. Investors are selling currencies of countries with near-zero interest rates to buy higher-yielding assets.

“Volatility is coming down and we are seeing increased risk taking based on having no bad news recently and good news slowly trickling in,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. “The U.S. has had decent economic numbers for a while now and Europe is not sinking through the mud.”

The real of Brazil, where benchmark interest rates are 10.5 percent, has gained 14 percent versus the yen this year. Mexico’s peso has advanced 13 percent. Borrowing in yen to buy higher-yielding currencies has returned 6.7 percent since December, according to the UBS AG V24 Carry Index.

--With assistance from David Goodman in London. Editors: Dave Liedtka, Dennis Fitzgerald

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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