The currency war that broke out yesterday has “triggered a flight to safety” and the current market volatility “will last for weeks”, affirms the Head of Foreign Exchange at one of the world’s largest independent financial advisory organisations.
James Stanton, from deVere Group, which has $10bn under advice and 80,000 clients globally, comments after the shock move yesterday by the Swiss National Bank (SNB) to scrap its currency floor against the Euro.
Mr Stanton explains: “After the SNB had previously affirmed it would defend the Euro/Swiss Franc floor, understandably no-one saw what was coming. It was a bolt-out-of-the-blue move that shook the markets to their core.
“The move yesterday heralded the start of a new currency war. Due to the enormity of this tide shift and the scope of volatility it has generated, we expect that turbulence is here to stay for a while yet.
“Investors cannot and will not shrug off what has happened over night; the undercurrent of volatility will last for weeks as the markets gradually readjust.
He continues: “The SNB’s shock ditching of the cap has triggered a significant flight to safety, as the once-assumed ‘safety’ of the Swiss Franc is eradicated.
“The dollar will make significant gains as investors plough into the world’s safe havens.
“This morning (Friday) we have seen the Euro against the Dollar breaking into the 1.15’s. The Dollar has risen by 0.5 per cent today as the European Central Bank’s move on stimulus edges ever closer. Couple this with market uncertainty surrounding the Swiss Franc, and I can only see further gains from the Dollar against the Euro as the day goes on.
“Carry trade currencies are also expected to surge, with the Japanese Yen, for example, expected to bite back against majors.
“As ever, volatility will create clear opportunities and should be a viewed as a chance to rebalance portfolios to mitigate future potential risks.”