Currency volatility over the decades
Currencies have been in the news during this tightening cycle as “King Dollar” demolished all rivals in 2022 and retreated this year. There was also a bumpy ride during the US debt ceiling drama.
However, on a historic basis, recent years have not been all that volatile, as our chart shows.
We measured historic volatility for eight of the G-10 currencies against the dollar by applying a month-on-month percentage change and standardising the results. Using the resulting Z-score (a statistical measure of deviation from the norm), we generated volatility “bubble sizes” for moments in time.
The 2008 financial crisis stands out as a period of unanimous volatility against the greenback. It’s also of note that several currencies appear to have been more volatile pre-2000. Japan’s yen experienced more sustained volatility after the 1985 Plaza Accord.
Britons scarred by the Truss/Kwarteng episode might be surprised to see that recent sterling trading has not been especially volatile compared to the early 1990s era of “Black Wednesday,” when the pound crashed out of the European exchange-rate system. (As we wrote last year, while some UK market moves in late 2022 were historic on a weekly basis, the market turmoil was relatively short-lived.)