Currency markets are so listless, the head of European foreign exchange sales at...
One question is whether this unusual calm could end in panic, as in March 2008 when Deutsche’s volatility index rocketed to over 12, after spending most of 2007 stuck below 7.
Many traders have been lured into ‘short vol’ strategies whereby, for example, they buy an option earning them a “premium” so long as euro/dollar remains between $1.11 and $1.15 for the next month. If volatility surges, smashing the currency out of its range, traders lose their original payment. Scant volatility is also prompting bond and equity managers to cut back on hedging, typically used to insure against losses.
One senior trader said forex revenues at his London-based bank have shrunk 5% a year for several years.
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