No fear forex markets

Foreign exchange volatility fell to the lowest level in almost seven years as central-bank polices of monetary stimulus and forward guidance restrain price swings.

The dollar(NYBOT:DXU14) was little changed against the yen after a report showed business activity in the Chicago area unexpectedly increased to a seven-month high in May. The Japanese currency(CME:JY) strengthened earlier as a government report showed inflation accelerated to the fastest in more than two decades in April, reducing the prospect of additional stimulus by the Bank of Japan. The krona declined versus most of its 16 major peers after Sweden’s economy unexpectedly contracted and amid speculation the Riksbank will cut rates. The Canadian dollar fell as first-quarter economic growth slowed.

“The forward-guidance policy by the central banks is keeping a lid on rate expectations,” said Peter Kinsella, a senior foreign-exchange strategist at Commerzbank AG in London. “We’re increasingly going to see very flat volatility. It doesn’t seem at present that there’s going to be any catalyst to shake us from the malaise.”

JPMorgan Chase & Co.’s volatility index for the currencies of the Group of Seven nations fell to 5.94 percent at 10:56 a.m. New York time, reaching the lowest level since June 2007. A separate JPMorgan index measuring global foreign exchange volatility also reached a 2007 low.

The dollar was little changed at 101.77 per yen, after dropping as much as 0.3 percent. The euro gained 0.2 percent to $1.3635. The shared currency added 0.3 percent to 138.79 yen.

Winners, Losers

The Russian ruble and Chile’s peso have gained 2.4 percent against the dollar this month, leading winners among 31 major currencies, according to data compiled by Bloomberg. The Swedish krona dropped 2.6 percent, while the Czech koruna slipped 1.9 percent, the biggest losers.

Canada’s dollar(CME:CDU14) dropped 0.2 percent to C$1.0858 against its U.S. counterpart after data showed gross domestic product grew at a 1.2 percent annualized pace in January through March, compared with a downwardly revised 2.7 percent in the prior three months. Economists surveyed by Bloomberg predicted growth would slow to a 1.8 percent pace.

The krona slid as much as 0.6 percent to 9.0894 per euro, the weakest level since May 6. It weakened for a fourth day against the dollar, depreciating 0.5 percent to 6.6768.

Gross domestic product shrank a quarterly 0.1 percent in the three months through March, Statistics Sweden said today. GDP was seen unchanged in a survey of analysts by Bloomberg. The economy expanded an annual 1.9 percent, compared with the 2.5 percent growth predicted by the central bank.

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