The global currency market sees subdued volatility, as traders eagerly await potential global interest rate cuts and monitor the developments in US politics, both of which could inject dynamism into the market.
Central banks are anticipated to gradually ease monetary policy, with the Swiss National Bank already taking action.
The uncertainty around the exact start of rate cuts could leave traders more cautious while volatility could increase as they materialize.
Changing rate differentials could influence traders’ approach to the market and could weigh on carry trades.
Additionally, direct intervention by Japanese authorities to support the yen could influence currency markets and inject more volatility.
The stronger greenback has remained steady below the 152 mark against the yen as intervention risks remain while the pair could continue to react to comments from the Bank of Japan. Since last week, traders have increased their short positions on the yen, increasing risks while volatility decreased year-to-date.
Upcoming US elections could also fuel some risks over the medium term as the outcome remains uncertain and could have implications on economic policy and tariffs as well as the relationship between the US and China, fueling some concerns on geopolitical tensions. As a result, traders could brace for heightened volatility, particularly in currencies such as the Chinese yuan.
In the meantime, the dollar index retraced after failing to go above its February peak. Traders are cautiously awaiting key US inflation data and the latest FOMC minutes on Wednesday to update their expectations regarding monetary policy in the US. Volatility could increase if US data readings are far from forecasts.
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