Managing Risks Presented by a Volatile FX Market

Managing Risks Presented by a Volatile FX Market

Investors, traders and companies worldwide are under pressure to find fresh ways of managing risks and limiting their exposure to the major shifts exp

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Investors, traders and companies worldwide are under pressure to find fresh ways of managing risks and limiting their exposure to the major shifts experienced by the foreign currency exchange markets. According to Bloomberg Data, the foreign currency exchange markets transact around $5.3 trillion every day. Most firms are paying a lot of attention to the many factors that impact the currencies and especially the dollar. A good number of firms have turned to modern tools for assistance in this cause.

FX Modeling in a Changing World
There models being created to predict the likely paths that currencies will assume over a period of time like a week, month or year have changed since 2008 during the global financial crisis. This was according to a number of speakers at the just concluded Strong Dollar event that took place at the Bloomberg Headquarters (New York). Governments and central banks had hoped to encourage their economies grow via monetary policies of quantitative easing and low interest rates. However, participants at the event noted that these were not working as they had hoped. Low interest rates do not necessarily spur economic growth when corporations and individuals financial position and economic confidence is heavily damaged.

In FX trading, the various issues that have to be considered and tracked have over time evolved. They now have to do with the geopolitical events in emerging and developed countries. This was from the decisions that speakers and central banks in the event stated. On the issue of whether the emerging market finances will strengthen in 2016, participants contested that they should not be overlooked. This is especially true in a current FX trading scenario and prospects that were related to various commodity prices.

Predictable and Unpredictable Risks
Participants at the event discussed in length the various risks that carried the potential to impact heavily on the foreign exchange markets in the coming days. These were;
The UK referendum (Brexit) had sen panelists warn of major devastating consequences in Europe and other regions.

Renminbi rates since the economy of China is growing slowly than it was initially thought. The panelists were concerned with the future policy and market opaqueness.

U.S. Elections, japan and other areas. The panelists were concerned with the impact they would have on other international currencies when compared with the dollar.

Possible increased interest rates in the U.S., this is likely to happen given the release of Federal Open Market Committees’ recent minutes-release.

A Fast changing economic and political development: There is a damaged confidence in the market and the apparent lack of clarity of the next occurrence will cause volatility.

Analysis Improvement and Guarding against Volatility
In the coming few months, the progress of the foreign currency markets world over as against the dollar remain unpredictable in a higher degree. A number of experts in the panel took divergent views on the meaning of the latest data in the context. A good number of panelists seemed to lean on the dollar’s bullish outlook due to its run overall and the economic potential harbored by the US. However, there were a number that chose to take a bearish outlook on the dollar: Chinese worries and tough U.S. retail figures away from autos could manage to hurt the dollar. This is the reason why it matters a lot to traders, investors and corporations to understand the risks involved in the best way possible and guard themselves well against currency volatility.

This imperative will drive the interest in the index instruments which help in hedging against the currency exposure. A good example is the newly introduced CME Bloomberg Dollar Spot Index futuresa contracts that are now available for trade on the electronic platform of CME Globex for trading. BDI, in an effort to represent real trade flows in the US, is aiming at measuring the dollar against the currencies that are emerging as the world’s most traded and developed in a more accurate manner.

All the experts present at the Strong Dollar event agreed that there was no denying the fact that geopolitical uncertainties need smart reactions. In the current world, the right benchmarking, market access and processes will be necessary for success and stability. Having a greater understanding of the currency trading and potential in an index that will be dynamically weighted with the current situations will work. It will provide people in FX derivatives with more chances of success in the turbulent environment.