THE year is only a few weeks old but already there has been turmoil in the foreign-exchange markets. On January 28th Singapore eased monetary policy, allowing its currency to fall to its lowest level against the dollar since 2010. The Swiss have abandoned their policy of capping the franc against the euro and the European Central Bank (ECB) has unveiled a big programme of quantitative easing (QE), sending the euro to an 11-year low against the dollar (see chart). Meanwhile, a rate cut from the Bank of Canada has pushed the loonie down to around 80 American cents, from 94 cents a year ago.The main reason for this sudden surge of volatility seems to be a divergence in monetary policy: no longer are central banks moving in the same direction. “There are two huge forces at work,” says David Bloom, a currency strategist at HSBC. “The ECB and Bank of Japan are printing money and devaluing their currencies while the US economy is growing strongly. Anyone who stands in the middle risks getting crushed.”The Swiss were caught in the middle. Their cap involved creating Swiss francs and using them to buy euro-denominated assets, but they clearly balked at...
from The Economist: Finance and economics http://ift.tt/1txrWgx
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