The apparent economic disarray which has been unfolding across many Western nations for the past two years may well have resulted in a sustained devaluation of key major currencies such as the British Pound and Euro, but it has brought back something that was utterly lacking for more than two decades: volatility.
Ever since the last decade of the Cold War in which much of Eastern Europe was a non-participant in the global free-market economy and much of Western Europe was struggling under austerity and labor union chaos, the emphasis has been on steady growth and a pragmatic rise to prosperity for most members of the European and American public.
Over the past 30 years, we have seen many European nations unite and accept a common currency, we have seen Britain shake off the shackles of post-World War 2 austerity after the boom years of the 1980s transformed it from a tough climate of trade unions and beige attire into a property-owning nation of entrepreneurs and international trade, punctuated only by some high interest rates in the early 1990s and the financial crisis of 2008/2009 which only affected some banks and was swiftly recovered from.
Today, the citizens of Europe and much of North America are in a very different place. Over two years of economically catastrophic government-enforced lockdowns, taxpayer-funded furlough schemes, travel restrictions, the exit from the European Union of Great Britain, supply chain curtailments and geopolitical tensions have created rapidly depreciating currencies and massive holes in national balance sheets.
We hear endless reports about the cost of living crisis, and rocketing inflation, energy bills quadrupling and interest rates set to rise to such worrying levels that British banks have been removing mortgage products from the market.
This cocktail of woes has caused the Pound to tank over recent weeks, and although the Euro held up well, as soon as the European Central Bank began raising interest rates, it too began to sink in value.
The anomaly has been the strength of the US Dollar, which is proving its mettle as the world’s most reliable reserve currency as it has held up very well against the Euro and British Pound despite the United States being subject to similar fiscal and political challenges as mainland Europe and the United Kingdom.
Interestingly, reports have focused on all of the doom and gloom, but have not been necessarily quick to note the upside of this, that being the increased interest in FX trading due to such levels of volatility which have not been present for almost 3 decades.
As an example, Euronext, which is a European electronic trading venue which operates exchange-traded funds, warrants and certificates, bonds, derivatives, commodities, foreign exchange as well as indices, has been experiencing a boom in volumes on its specialist FX trading platform Euronext FX to the extent that over 30% more trades took place on Euronext in September this year compared to the same period last year, resulting in an aggregated monthly turnover of $533 billion, which is up 18 percent from $452 billion that changed hands in the previous month.
Additionally, interbank FX trading is at multi-year highs in terms of volume, demonstrating that the Tier 1 banks are attempting to capitalize on the increased levels of volatility.
Today the US Dollar remains strong, as the Pound has begun to decline once again against the greenback, and the EURUSD pair languishes at 0.97, which is almost parity.
Yes, the economic outlook remains bleak across Europe and Britain, but the currency markets are alive with volatility.
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