Dollar volatility surged to the
highest in a year versus the euro and price swings in Treasuries
rose to a two-month high as economists predicted the European
Central Bank will cut its deposit rate to below zero today.
The implied volatility on one-day options on the euro-dollar exchange rate surged to as much as 20.05 percent, the
most since February 2013, from 4.3 percent at the end of last
week. For Treasuries, the Bank of America Merrill Lynch MOVE
Index, which measures price swings based on options, climbed
four basis points to 64.9 basis points yesterday, the biggest
gain since April 2.
“The market is anticipating a more aggressive ECB easing
policy,” said Park Sungjin, the head of asset management in
Seoul at Meritz Securities Co., which manages $7 billion. “The
situation is making market volatility increase.”
Price fluctuations are increasing with the ECB poised to
become the first major central bank to reduce interest rates to
negative levels. Policy makers will cut the deposit rate to
minus 0.1 percent when they meet today, based on the median
forecast in a Bloomberg News survey. Forty-four of 50 economists
surveyed the ECB will also reduce its main refinancing rate.
Price changes are also increasing before the monthly U.S.
employment report tomorrow. The Labor Department will say U.S.
employers added 215,000 workers in May, versus 288,000 in April,
based on a separate Bloomberg survey.
Yen Climbs
The euro was little changed at $1.3601 at 1:46 p.m. in
Tokyo after falling to $1.3586 on May 29, the weakest level
since February. The common currency declined 0.2 percent to
139.39 yen. The yen climbed 0.3 percent to 102.49 per dollar.
The yen rose against all but two of its 16 major peers as
investors turned to the safety of Japanese assets as a hedge
before the ECB’s policy decision, according to Desmond Chua, a
strategist at CMC Markets in Singapore.
ECB President Mario Draghi and his colleagues meet today in
Frankfurt, after having signaled all options are up for
discussion as they seek to revive inflation.
“There’s a lot of risk surrounding the meeting, with
investors split over the extent of additional easing, and
whether or not Draghi will disappoint,” he said. “If we don’t
see the full suite of easing expectations fulfilled, we may get
a dead cat bounce in euro.”
The implied volatility for the euro against the dollar on
one-month contracts rose to as high as 7.31 percent, the most
since Feb. 6.
ECB Decision
Two euro-area central-bank officials said Draghi will
probably indicate that any interest-rate cut this week won’t be
the last. He may reiterate his commitment to keeping borrowing
costs at current or lower levels, they said, asking not to be
identified because the talks aren’t public.
“The market consensus is for at least a rate cut, but it’s
what the ECB does in addition to that that’s the question,”
said Yasuhiro Kaizaki, a vice president for global markets in
New York at Sumitomo Mitsui Trust Bank Ltd. “Whatever it is, I
doubt they’ll stop there. The trend for a weaker euro will
continue.”
U.S. Treasury 10-year yields fell two basis points to 2.58
percent, according to Bloomberg Bond Trader data. The price of
the 2.5 percent note due in May 2024 was 99 1/4. The yield
climbed to 2.61 percent yesterday, the highest since May 14.
Courtesy: bloomberg
----------------------------------------------------------------------------------------------------------------------
The views and opinions expressed herein are the author’s own, and do not necessarily reflect of intradaylivetips.com
No comments:
Post a Comment