Morgan Stanley, BNP Brace for the Return of Currency Swings
- Strategists see volatility as central banks create policy rift
- Fed’s more hawkish December minutes catch traders off guard
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As waves of volatility lash bond and stock markets, currencies are an island of relative calm. Wall Street says that’s about to change as rifts open between central banks the world over.
At Morgan Stanley and BNP Paribas SA, strategists are predicting greater price swings as policy makers scale back on stimulus at different rates, opening fault lines under usually stable Group-of-10 currencies. BNP’s Oliver Brennan is predicting one-year implied volatility between the euro and the dollar will advance to around 9%, a level last seen at the height of the pandemic -- and before that, back in 2017, when the Federal Reserve’s previous hiking cycle was in full swing.