Euro drops vs. most major peers as Draghi joins IMF in alert

Volatility Slips

Implied volatility among major currencies, which signals the expected pace of price swings, slipped three basis points, or 0.03 percentage point, to 7.65 percent, almost the least since 2007. Lower volatility makes investments in currencies with higher key lending rates more attractive because the risk in such trades is that market moves will erase profit. The five- year average is 12.4 percent.

The Swiss currency weakened against most major peers after State Street Corp. and Bank of New York Mellon Corp. said they will charge depositors to hold Danish krone and francs as customers seek refuge from the crisis-stricken euro.

State Street will apply a negative interest rate of 0.75 percent annually to krone deposits starting Nov. 1, with a separate charge for francs, according to a note to clients last week. That means money managers, insurance companies and pension funds must pay the bank to hold their cash.

BNY Mellon started charging for krone deposits last month, a person with knowledge of the matter said. The lender isn’t charging for francs.

Undeterred Investors

The move is unlikely to have a lasting effect on the franc “given that interest rates have been negative in the interbank market for months,” Gareth Berry, a foreign-exchange strategist at UBS AG in Singapore wrote in a note. “Those who wish to hold Swiss franc deposits for safe-haven reasons are unlikely to be deterred by a 25 basis-point penalty.”

The franc declined less than 0.1 percent to 1.2112 per euro, after earlier sliding to a three-week low of 1.2143. It weakened 0.5 percent to 93.82 centimes per dollar.

The pound fell 0.2 percent to $1.6002 before paring the decline to trade at $1.6014. Factory output in the U.K. dropped 1.1 percent in August from July, when it rose 3.1 percent, the Office for National Statistics said today in London. A Bloomberg News survey forecast a decline of 0.7 percent. Overall industrial output decreased 0.5 percent. The goods-trade deficit widened as exports fell.

<< Page 2 of 3 >>

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome