Credit Suisse Shorts Euro in Opaque, Low-Volatility World

  • Currency volatility has averaged below 2011 and 2008 crises
  • Euro seen in range between $1.04 and $1.16 through June 2016

Credit Suisse Group AG is running a “small position” to profit from a drop in the euro against the dollar as it reduces investments that are vulnerable to sudden shifts in currency levels, said Robert Parker, a senior adviser in the investment, strategy and research group.

Switzerland’s second-largest bank is avoiding major bets in the foreign-exchange market because volatility among major currencies has been low, Parker said in an interview by phone from London. The euro has been trading in a range of $1.08 to $1.17 since the middle of May, after recovering from a 12-year low of $1.0458 reached on March 16. In 2014, the common currency had swung between $1.3993 and $1.2097.

“You reduce risk when the outlook is opaque or the expectation is that the moves will be very small,” said Parker, who was vice chairman of the bank’s asset-management business. “But from a trading point view, having a small long-U.S. dollar position makes sense.”

The outlook for swings in global foreign-exchange rates as measured by a JPMorgan Chase & Co. gauge averaged 10.2 percent this year, below 11.9 percent for 2011 during the European debt crisis, and 13.4 percent in 2008 amid the global financial turmoil.

‘Being Cautious’

“We, as an organization, are being cautious on the foreign-exchange markets,” Parker said.

Parker said in April that Credit Suisse was starting to cut positions that sought to profit from the dollar’s strength as it was becoming a “crowded trade.” The Bloomberg Dollar Spot Index, which measures the greenback’s performance against a basket of 10 major counterparts, has declined 0.5 percent since the end of March.

The euro traded at $1.1284 as of 7:33 a.m. in London. It is set to remain in a range between $1.04 and $1.16 through the first half of next year, Parker said. The European Central Bank may increase monetary stimulus and the Federal Reserve will slowly raise interest rates “at some stage,” he said.

The Frankfurt-based central bank’s attempts to battle anemic price pressures in recent months have stumbled, with the bloc’s inflation rate unexpectedly turning negative in September even after quantitative easing started in March.

The euro zone’s current-account surplus and acquisitions in the region by Asian and U.S. companies have supported the euro in recent months, Parker said.

“The European Central Bank is very nervous about any trend appreciation in the euro,” Parker said. “Ideally, they really don’t want a euro much above $1.15, $1.16; they would be much more comfortable somewhere close to $1.04.”

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