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FX markets in for bumpy ride over next three months: Reuters poll -Breaking

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© Reuters. This illustration was taken on February 24, 2022. REUTERS/Dado Ruvic/Illustration

Vivek Mahishra, Hari Kishan, and Vuyani Nyaba

BENGALURU/JOHANNESBURG (Reuters) – Currencies are in for a bumpy ride with already heightened volatility expected to increase over the next three months in the wake of Russia’s invasion of Ukraine, according to a Reuters poll of analysts who forecast more pain for the battered rouble.

According to the COVID-19 Pandemic Report, volatility spiked Wednesday at levels never seen before. Deutsche Bank (DE:).

The trend should continue, with more than 90% responding to an extra question from the poll of currency strategists on February 28-March 3. They expect volatility to rise or fall significantly in the immediate future.

Steve Englander (OTC), head of G10FX strategy, Standard Chartered (OTC): “It will have a higher volatility period because the issues under consideration haven’t been discussed in a generation or in some places during a lifetime.”

Money has been diverted from more risky assets to safer havens like the dollar, Japanese yen, and Swiss Franc since the Russian invasion of Ukraine on February 24, as well as currency linked with commodity markets.

The franc and the yen were both expected to be in short-term demand, but they are forecast to lose some ground against the greenback in 12 months. Neither currency has an edge in interest rates.

According to a separate Reuters poll, the U.S. Federal Reserve will begin increasing rates this month at its meeting from close-zero. It is expected to deliver at least 125 basis point of tightening before year end. [ECILT/US]

“The safe havens of the past…are performing well under tensions but are not exceptional when they ease, and perform badly when tensions subside because in a sense, they offer nothing. Englander stated that they don’t offer rates.

INVASION’S WIDER FX UNCLEAR IMPLICATIONS

Over 60 survey respondents had little to no change in their median forecasts compared to the February poll. This suggests that many analysts have yet not fully understood the implications for FX markets of European armed conflict.

Michael Every, Rabobank’s global strategist, stated that there is a wide variety of geopolitical outcomes. The market has not priced them correctly.

“The risk in this background is greater than any concern with how the Euro/dollar trades.”

Analysts have so far predicted that the euro will recover its losses of 2.5% for the year, and increase more than 1.0% in the following 12 months.

Forecasts for the franc, yen, and franc trades will be slightly lower over the coming year. However, commodity currencies are forecasted to surpass them.

Expect the dollar to rise by 2.3% and 6.0% respectively and that of Canada over 2.5%.

On Thursday, the Russian ruble fell to a new record low, losing more than a third its value as Western sanctions hammered Russia’s financial system.

When asked how low they expected the rouble to fall this month, eleven strategists responded with a median value of 125/$. Forecasts were available in a range of 120 to 150/$.

Turkey’s neighbor Russia, President Tayyip Erdoan has been asking the central bank to reduce interest rates in order to combat inflation, which is currently running at 54%. However, Turkey has been hit hard by the currency crisis, which saw the Turkish lira drop nearly half of its value last year.

Forecasts indicated that the lira would plunge by 20% over the next twelve months.

(For more stories about the March Reuters foreign currency poll, click here

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