Fed officials suggest U.S. recovery may be stalling By Reuters


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© Reuters. “Challenges for Monetary Policy” conference in Jackson Hole, Wyoming

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By Howard Schneider

(Reuters) – Federal Reserve officials raised fresh doubts on Wednesday about the durability of the U.S. recovery, while new business surveys highlighted developing risks from the relentless coronavirus pandemic.

In separate appearances, Atlanta Fed President Raphael Bostic and Richmond Fed President Thomas Barkin noted what Barkin characterized as “air pockets” facing the U.S. economy – businesses exhausting existing order books without refilling them, and households facing the end of unemployment benefits and other support.

“Businesses like construction had pretty good pipelines and kept going,” through the first phase of the pandemic Barkin said in webcast remarks to a group of local chambers of commerce in Virginia’s Shenandoah Valley.

He added, however, “New orders are not coming on line in the same way. We have fiscal payments … that are coming to an end and it is not clear what is going to replace them.”

Bostic told the Rotary Club of Columbus, Georgia, he was concerned not so much that states in his southern region had tried to reopen too fast, but without due care about how to manage the riskiest activities.

Caseloads are now surging in places like Florida, and high frequency data on small businesses, for example, “are suggesting the energy for reopening businesses and for just general activity is starting to level off,” he said.

The comments from Barkin and Bostic suggest the seemingly rapid rebound in jobs, retail sales and some other measures of activity in May and June may not persist.

There were hints of the same in two business surveys released on Wednesday.

In the latest quarterly survey of more than 500 company chief financial officers, conducted jointly by the Atlanta and Richmond reserve banks and Duke University, the finance chiefs on average said they were worried about continued weak demand for their products, and expected job recovery to stall for the rest of the year.

Overall optimism among the CFOs did improve compared to the first weeks of the pandemic, though. That is in line with other surveys among households and businesses that suggest people feel the deepest economic risks from the pandemic have been avoided.

A quarterly sentiment index published by the Conference of State Bank Supervisors, by contrast, showed community bankers remained deeply pessimistic. The most recent reading was 90, roughly unchanged since the last survey and well below the “neutral” reading of 100. The figure was 122 last fall.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

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Dollar Up Amid Rising COVID-19 Fears and Fed Warning By Investing.com



© Reuters.

By Gina Lee

Investing.com – The dollar was up on Wednesday morning in Asia, with investors turning to the safe-haven asset amid continuously-rising number of COVID-19 cases.

Investor sentiment was further dampened over a warning from several U.S. Federal Reserve officials that the rising number of cases could jeopardize economic recovery, with some stimulus programs from central banks due to expire soon.

“The mood changes day by day, but the dollar looks to be supported for now as investors turn more cautious about the virus,” Yukio Ishizuki, foreign exchange strategist at Daiwa Securities, told Reuters.

“The Fed’s comments on the economy sound sombre. There’s reason to worry because it is hard to see when the virus will be brought under control.”

The that tracks the greenback against a basket of other currencies gained 0.06% to 96.895 by 12:09 AM ET (5:09 AM GMT). The pair was up 0.09% to 107.60.

The pair lost 0.08% to 0.6941. The AUD took a hit after the country’s second-largest city Melbourne re-imposed lockdown measures to curb the outbreak.

The pair fell 0.07% to 0.6542.

The pair gained 0.09% to 7.0188, with the yuan taking a hit after the People’s Bank of China set a lower-than expected daily midpoint for the yuan.

The pair gained 0.14% to 1.2557. The pound was boosted by British Prime Minister Boris Johnson’s re-commitment to reaching a trade deal with the European Union.

But investor skepticism remained alongside the risk that the deal will not materialize.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Fed Looks to Bolster Forward Guidance; Mulls Yield Curve Control , Minutes Show By Investing.com



© Reuters.

By Yasin Ebrahim

Investing.com – Federal Reserve policymakers discussed the need to bolster forward guidance in the coming months when they met last month, and suggested that the jury was still out on the use of yield curve control, according to the Fed’s June meeting minutes released Wednesday.

“Various participants noted that the economy is likely to need support from highly accommodative monetary policy for some time and that it will be important in coming months for the Committee to provide greater clarity regarding the likely path of the federal funds rate and asset purchases,” according to the minutes. 

There was also support to tie forward guidance to economic metrics, with a number of policymakers suggesting future monetary policy be linked to inflation outcomes. 

“Participants generally indicated support for outcome-based forward guidance. A number of participants spoke favorably of forward guidance tied to inflation outcomes that could possibly entail a modest temporary overshooting of the committee’s longer-run inflation goal but where inflation fluctuations would be centered on 2 percent over time,” the minutes showed. 

Fed members discussed two tools for conducting monetary policy when the federal funds rate is at its effective lower bound, including forward guidance and large-scale asset purchase programs in supporting employment and inflation and an approach that caps or targets interest rates along the yield curve — a measure allowing central banks to target specific government bond yields through the purchase and sale of bonds, to help keep lending rates near zero.

Debate Over Yield Curve Control

Pointing to a review of the yield caps or targets (YCT) policies the Federal Reserve followed during and after World War II and that the Bank of Japan and the Reserve Bank of Australia are currently employing, nearly all Federal Open Market Committee members indicated that they had many questions regarding the costs and benefits of such an approach. 

“The three experiences suggested that credible yield curve target (YCT) policies can control government bond yields… and may not require large central bank purchases of government debt,” the minutes showed. “But the staff also highlighted the potential for YCT policies to require the central bank to purchase very sizable amounts of government debt under certain circumstances … and the possibility that, under YCT policies, monetary policy goals might come in conflict with public debt management goals, which could pose risks to the independence of the central bank.”

With the central bank is likely to persist with ensuring rates remain lower for longer, yield curve control is unlikely to make into the Fed’s toolbox in the immediate future. “Yield curve control is still under discussion, though FOMC members still have “many questions” on the costs and benefits. It’s probably not imminent,” Pantheon Macroeconomics said. 

Following their June 9-10 meeting, Fed officials left interest rates in the range of 0%-to-0.25% and signaled that near zero rates would continue through at least 2022.

In their post-meeting statement, they vowed to persist with bond purchases “at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.”

The Fed committed to buying $80 billion a month in Treasuries and $40 billion a month in agency mortgage backed securities.

The Fed’s balance sheet has declined by $12.4 billion to $7.08 trillion as of June. 24, compared with the week prior, driven by a decline in demand for the Fed’s dollar swap lines from overseas central banks.

The U.S. central bank’s balance sheet stood at about $4 trillion just before the pandemic struck in the U.S. in early March.

Threat of a Second Wave

Since the Fed’s last meeting, the U.S. has seen a greater resurgence in infections that has forced states to roll back plans to speed up the pace of reopening businesses. 

In testimony before the House Financial Services Committee on Tuesday, Federal Reserve Chairman Jerome Powell, acknowledged the threat of a potential second wave of infections on the economy.

A second wave could “force government and force people to withdraw again from economic activity … and “undermine public confidence, which is what we need to get back to lots of economic activity,” Powell said.

“Output and employment remain far below their pre-pandemic levels. The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus,” he added.



Getting ‘more and more happy’ with Fed Chair Powell during pandemic By Reuters



© Reuters. FILE PHOTO: U.S. House of Representatives Financial Services Committee hearing on oversight of the Treasury Department and Federal Reserve response to the outbreak of the coronavirus disease (COVID-19), in Washington

WASHINGTON (Reuters) – President Donald Trump on Wednesday indicated he was warming to Federal Reserve Chairman Jerome Powell, whom he has harshly criticized for not cutting lending rates below zero, telling Fox Business Network he appreciated the central bank putting liquidity into the economy during the coronavirus pandemic.

“I would say that I was not happy with him at the beginning. And I’m getting more and more happy with him. I think he’s stepped up to the plate. He’s done a good job,” Trump said but would not answer a question about whether he thought Powell should serve another term. “He’s had to liquefy a little bit, let us liquefy, let the economy I mean put out that money that you need.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



Fed officials signal rising caution on U.S. economic recovery amid virus spread By Reuters



© Reuters. Federal Reserve Board Chairman Jerome Powell testifies before the House Financial Services Committee during a hearing featuring the semi-annual Monetary Policy Report, on Capitol Hill in Washington

By Jonnelle Marte and Lindsay (NYSE:) Dunsmuir

NEW YORK/WASHINGTON (Reuters) – Two U.S. Federal Reserve officials sounded increasing pessimism on Friday on the swiftness of any economic recovery from the novel coronavirus epidemic and warned the unemployment rate could rise again if the disease is not brought under control.

The central bank already made clear it expects a full economic healing from the impact of the virus to take years as it kept interest rate near zero at its policy meeting last week.

But nascent signs of recovery in U.S. economic data, with better-than-expected job gains and retail sales for the month of May, had fueled some hopes that the United States could bounce back more quickly.

Fed officials pushed back on that view on Friday and cautioned against reopening the economy too hastily after the end of state lockdowns aimed at containing the virus, which has killed more than 118,000 Americans.

California, North Carolina and a string of U.S. cities mandated or urged mandatory use of masks on Thursday to get a grip on spiraling coronavirus cases as at least six states set daily records.

“This lack of containment could ultimately lead to a need for more prolonged shut-downs, which result in reduced consumption and investment, and higher unemployment,” Boston Fed President Eric Rosengren said in a virtual event organized by the Greater Providence Chamber of Commerce.

Minneapolis Fed President Neel Kashkari also said the economic recovery would take longer than he had hoped just a few months ago, and warned the recent positive trend on job gains could soon be reversed if the virus is not tamed soon.

“Unfortunately, my base case scenario is that we will see a second wave of the virus across the U.S., probably this fall,” Kashkari said during a Twitter chat moderated by CBS News. “If there is a second wave, I would expect the unemployment rate to climb again.”

LONG AND SLOW

Earlier this week, in two separate appearances before lawmakers in the U.S. Congress, Fed Chair Jerome Powell warned millions of people will likely still be unemployed even as the economy is on the path of recovery.

Powell, Rosengren and others have all said more fiscal and monetary policy support is likely needed to help them. Fed Vice Chair Richard Clarida told Fox Business Network on Friday “there’s more that we can do, I think there’s more that we will do.”

Clarida added there is no limit to the Fed’s potential purchases of Treasury securities or mortgage-backed securities.

Congress has allocated nearly $3 trillion for coronavirus-related economic aid and the Fed has pumped trillions of dollars of credit into the economy to cushion it from the fallout from the epidemic.

But some Republicans have been resistant to doing more quickly, especially given recent positive economic data.

Powell, in a separate appearance on Friday, reiterated that the U.S. economic recovery will not be quick or smooth.

“We will make our way back from this, but it will take time and work … The path ahead is likely to be challenging,” Powell said during a webcast discussion with local business and community leaders in Youngstown, Ohio, on building a resilient workforce.

“Lives and livelihoods have been lost, and uncertainty looms large,” he said.



Japan begins to unwind dominant position in dollar swaps with Fed By Reuters



© Reuters. Illustration photo of U.S. Dollar and Japan Yen notes

By Stanley White

TOKYO (Reuters) – Japan, the biggest taker of cheap dollar funding from the U.S. Federal Reserve during the coronavirus pandemic, is weaning itself off that supply as it shies away from emergency swaps and returns to now sedate interbank markets.

When the Federal Reserve announced cheap dollar swap lines for global central banks in March as it tried to stave off a dollar funding crunch wrought by the pandemic, Japan was first out of the blocks.

From April through this week, the Bank of Japan was the biggest user of that cheap funding, taking up as much as $225 billion or more than half of what was on offer, as a banking sector addicted to investing and lending overseas struggled to get the dollars it needed from interbank markets.

That helped Japanese banks and funds to keep investing in higher-yielding U.S. stocks and global bond markets, as they have traditionally done, to beat the near-zero returns on offer at home.

Data this week, however, shows Japanese institutions are not keen to renew their three-month yen-for-dollars swap contracts with the Fed, which they access through the Bank of Japan.

The BOJ’s outstanding dollar swaps with the New York Fed stood at $171.4 billion on June 18, which is down from a peak set in late May but still accounts for 61% of the Fed’s total outstanding dollar swaps with major central banks.

(GRAPHIC – Outstanding dollar swaps with the New York Federal Reserve: https://tmsnrt.rs/37HWVNp)

Analysts expect Japan to steadily reduce its reliance on the Fed swap window, since interbank markets have normalised and banks would rather go there than borrow from what is deemed a central bank emergency window.

“Dollar borrowing costs have become cheaper, so Japanese banks would like to reduce unnecessary use of central bank swaps,” said Osamu Takashima, head of G10 foreign exchange strategy at Citigroup (NYSE:) Global Markets Japan.

“Too much reliance on central bank swap lines is not healthy. Of course, Japanese banks recognise this.”

The cross-currency basis swap – the premium investors pay over interbank rates to swap yen for three-month dollars – is currently 17 basis points. In March it blew out to 152 basis points.

In comparison, the Fed lowered the cost for dollar swaps with other central banks in March to 25 basis points over the overnight index swap rate , which was only 13 basis points at the time.

Japan’s commercial banks pounced on the cheaper dollars to fund their dollar lending overseas, especially because some of these banks do not have enough dollar-denominated deposits to lend out, analysts said.

Some of these cheaper dollars also made their way to Japanese institutional investors, who regularly turn to commercial banks to secure dollars for overseas investment.

A spokesman for Sumitomo Mitsui (NYSE:) Financial Group (T:) said the bank used the BOJ’s dollar funding to meet its customers’ foreign currency needs but did not use the money to invest on its own accounts.

Mizuho Financial Group (T:) and Mitsubishi UFJ (NYSE:) Financial Group (T:) declined to comment.

In March, Japan’s net investment in overseas equities surged to 1.8 trillion yen ($16.8 billion), the highest ever based on comparable finance ministry data going back to 2005, while investment in foreign bonds rose to an 18-month high of 3.5 trillion yen.

“I go to commercial banks to get my dollars, so it is certainly possible for the Fed’s dollars to end up with Japanese who invest overseas,” said one Japanese institutional investor, who declined to be named.

“I don’t think this is a big problem. In terms of economic scale, our dollar funding needs are not that big.”





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Fed officials’ GDP forecasts not likely factoring second COVID wave: Powell By Reuters



© Reuters. FILE PHOTO: U.S. Federal Reserve Chairman Jerome Powell  speaks in Washington

(Reuters) – The economic growth projections Federal Reserve officials offered last week by and large do not factor in a potential second wave of coronavirus infections later this year, Fed Chair Jerome Powell said on Tuesday.

Powell’s remark came in the first of two days of testimony to Congress, during which he repeated a now-standard mantra that the disease will determine the strength and persistence of any recovery from the recession that began in February.

That said, it appears a second wave is not his or his colleagues’ base case.

At their meeting last week, 17 Fed policymakers provided their first take on where the economy goes next in the wake of the pandemic. The median view called for a full-year contraction in gross domestic product of 6.5% from 2019.

“Does this projection assume a potential second wave of coronavirus and the accompanying economic impacts?” Senator Krysten Sinema, an Arizona Democrat, asked Powell.

“That number is actually the median of the projections of the 17 participants of the FOMC (Federal Open Market Committee) so it isn’t an official prediction of the Fed,” Powell said in reply. “It will be based on different assumptions made by different people. Each of the 17 will have probably made a somewhat different assumption.”

“I would think the answer to your question, though, largely will be that … my colleagues will not principally have assumed that there will be a substantial second wave.”

“Oh, that’s concerning,” Sinema retorted.

To be sure, the 17 projections cover a wide-range of potential outcomes, the worst of which arguably could take into account a resurgence of COVID-19 in the second half of the year. Policymakers’ estimates for the 2020 change in GDP ranged from a low of negative 10% to a high of negative 4.2%.

Still, to Powell’s point, the “central tendency,” which reflects the weight of estimates, ranged from negative 7.6% to negative 5.5%, which would not appear to factor a substantial drag from any second wave.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



Dollar Weakens as Fed Boosts Risk Sentiment By Investing.com



© Reuters.

By Peter Nurse

Investing.com — The dollar sold off in early European trade Tuesday, as the Federal Reserve’s move to start purchasing U.S. corporate bonds boosted sentiment at the expense of safe havens.

At 2:55 AM ET (0655 GMT), the , which tracks the greenback against a basket of six other currencies, was down 0.2% at 96.498. gained 0.2% to 1.1340, while the risk-sensitive rose 0.1% to 0.6924.

Late Monday the U.S. central bank flew to the rescue once more, stating it will start purchasing investment grade U.S. corporate bonds in a bid to secure companies’ access to cash and ensure credit market liquidity.

“The Fed unloaded additional stimulus measures on Monday after market sentiment had soured over the past week,” said analysts at ING, in a note to clients. “The Fed’s Main Street lending program and expanded bond purchase scheme should help support risk sentiment with Jerome Powell trooping to the Senate to give testimony later on Tuesday.”

Attention will quickly turn to Fed Chair Jerome Powell’s virtual to the Joint (NASDAQ:JYNT) Economic Committee on his economic outlook and recent monetary policy decisions, at 10:00 AM ET (1400 GMT).

“Powell will testify to Congress later today and will likely repeat the dovish message about the economy delivered after the FOMC meeting last week,” said Chief Economist Timothy Fox at Emirates NBD, in a note to clients.

Elsewhere, rose 0.1% to 107.47 after the Bank of Japan kept monetary settings steady earlier Tuesday, but increased the size of its lending packages for cash-strapped firms to $1 trillion from about $700 billion announced last month.

Sterling gained Tuesday, amid optimistic noises out of London and Brussels after Brexit talks between Prime Minister Boris Johnson and European Commission President Ursula von der Leyen. 

However, the latest round of U.K. employment data were mixed: the unexpectedly held steady at 3.9% over the three months to April, whereas many had expected a rise in the unemployment rate to 4.7%. However, the claimant count in May rose by nearly 530,000 and the rise in April’s claims was revised up to over 1 million from 857,000 

climbed 0.3% to 1.2641 and fell 0.1% to 0.8972.

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Systemic racism slows down economic growth, Dallas Fed chief says


FILE PHOTO: Dallas Federal Reserve Bank President Robert Kaplan speaks at the Commonwealth Club in San Francisco, U.S., October 11, 2019. REUTERS/Ann Saphir

WASHINGTON (Reuters) – Systemic racism and high unemployment levels among black and Hispanic Americans create a drag on the U.S. economy, Dallas Federal Reserve President Robert Kaplan said on Sunday.

“A more inclusive economy where everyone has an opportunity will mean faster workforce growth, faster productivity growth and will grow faster. And so I think we’re right to focus on this and bore in on this,” Kaplan said on CBS’ “Face the Nation.”

Kaplan said he agreed with his counterpart at the Atlanta Federal Reserve Bank, Raphael Bostic – the Fed’s only African-American policymaker – who on Friday issued an impassioned call for an end to racism and laid out ways the U.S. central bank can help.

The comments by the Fed policymakers follow weeks of nationwide protests against police brutality and racism after the May 25 death of George Floyd during an arrest in Minneapolis. The police officer who knelt on Floyd’s neck for almost nine minutes has been fired and charged with murder.

“It’s in the interest of the U.S.,” Kaplan said. “The fastest growing demographic groups in this country are blacks and Hispanics. If they don’t participate equally then we’re going to grow more slowly.”

Kaplan said the Dallas Fed and the Federal Reserve System have been working for years to improve skills training and education for blacks and Hispanics, who have long endured a higher level of unemployment than whites.

Overall unemployment, which spiked dramatically during the economic shutdowns to curb spread of the coronavirus, is on the way down, Kaplan said, adding that he expects to see positive job growth starting this month.

He said fiscal policy, which is set by Congress, will be a critical element of the recovery from the coronavirus slowdown, including continued unemployment benefits, possibly “restructured to create more incentives for people to go back to work,” and benefits to state and local governments.

Reporting by Doina Chiacu; Editing by Daniel Wallis and Bill Berkrot



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FX Faces Risk of a Virus Shake-Up Even as Fed Anchor Remains By Bloomberg



© Reuters. FX Faces Risk of a Virus Shake-Up Even as Fed Anchor Remains

(Bloomberg) — The market horizon is littered with risks that could trigger bigger moves in currencies even as the Federal Reserve and other central banks double down on the policies that have anchored volatility close to historic lows.

Growing concern about the prospect of a second wave of coronavirus turmoil and potential variations in how well different economies bounce back from recession have helped fuel a recent uptick in foreign-exchange volatility, while uncertainties also swirl about China-U.S. tensions, America’s presidential election and what path the European Union chooses to take. And with the recent rally in riskier assets in reverse gear, the road ahead appears even more grim.

A Deutsche Bank (DE:) gauge of foreign-exchange implied volatility is trading near a three-week high, up from record lows in February before the coronavirus pushed it to a decade high in March. Traders were stunned earlier this year as the pandemic shock fueled volatility following a period where price swings mostly languished amid easy monetary policies.

Given the varying economic growth rates, “there will be a higher base level of volatility unlike what we saw pre-Covid when the global economy was very synchronized via trade flows, ” said Jordan Rochester, currency strategist at Nomura International Plc.

Central banks have helped to suppress volatility by using their balance sheets for large-scale asset purchases, driving investors into riskier asset classes for higher returns.

But with economic concerns reemerging, strategists see plenty of opportunities to take advantage of expected spikes in volatility.

Read more: Stocks Tumble Most in 12 Weeks on Economy, Virus: Markets Wrap

For Citigroup’s Tom Fitzpatrick, investors should buy six-month euro-dollar call options, betting on the common currency appreciating against the greenback, while Valentin Marinov, head of Group-of-10 FX strategy at Credit Agricole (OTC:), recommends volatility bets on key commodity-linked currencies.

Marinov is “looking for triggers of risk aversion and FX volatility beyond the tranquil months of June and July.” He sees value in buying six-month options on the U.S.-Canadian dollar and Australian-U.S. dollar pairs due to inverted volatility curves.

The so-called inverted volatility term structure shows hedging is relatively less expensive in volatility terms for longer tenors. He also sees demand to hedge against big moves around the U.S. presidential election scheduled for Nov. 3.

SEB’s strategist Lauri Hälikkä suggests investors start buying euro-dollar volatility as risks of the common currency further appreciating against the greenback increase. The euro is up 1.8% this month versus the dollar as the region’s leaders introduce new stimulus to bolster the economy.

“There will be virus differentiation across countries that will have profound economic effects,” said Deutsche Bank chief international strategist Alan Ruskin. That should help to “limit the decline in volatility,” he said.

©2020 Bloomberg L.P.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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