Currency Volatility Falls to Record on Central Bank Funds

A measure of currency volatility fell to the lowest ever as the world’s biggest central banks flood financial markets with liquidity in an effort to kick start economic growth.

JPMorgan Chase & Co.’s Global FX Volatility Index fell to 5.8 percent, less than the previous record of 5.9 percent in June 2007. That compares with 27 percent in October 2008, the highest ever, shortly after Lehman Brothers Holdings Inc. collapsed amid the worst financial crisis since the Great Depression.

The Federal Reserve’s balance sheet has swollen to $4.3 trillion from $906 billion in September 2008 as it seeks to boost assets prices and drive down unemployment. It’s tapering its monthly asset purchases while holding its target for short-term interest rates virtually at zero, where it’s been since December 2008.

“Investors are saying until the data come out in very concrete sort of way to contradict the Fed, we’re just going to go with the Fed and that means low volatility,” said Steven Englander, the New York-based global head of Group of 10 foreign-exchange strategy at Citigroup Inc.

The European Central Bank cut its deposit rate to minus 0.1 percent yesterday, becoming the first major central bank to take one of its main rates negative. In a bid to get credit flowing to parts of the economy that need it, policy makers also opened a 400 billion-euro ($546 billion) liquidity channel tied to bank lending, and officials will start work on an asset-purchase plan.

A government report said last month’s U.S. jobs gains matched economist forecasts, spurring bets the Fed won’t adjust its unprecedented easing. Employers added 217,000 jobs in May, figures from the Labor Department showed. The median forecast in a Bloomberg survey of economists called for a 215,000 increase. Unemployment was unchanged at 6.3 percent.

“Any number that doesn’t scare the market into thinking that the Fed is going to move quicker, pulls volatility out of the market,” Englander said. “A number like this tells you don’t have to worry about anything for another month.”

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