With the exception of the severe upheavals during the coronavirus crisis in March 2020, the past few years have been characterised by very low volatility in currencies. In order to stabilise the markets during the coronavirus crisis, the main central banks cut their key interest rates to 0 % and below, and carry trades (see info box below) were sharply scaled back. The performance of the various regional equity indices also differed surprisingly little over the last five years.
This calm is now over. The cause: many central banks around the world have switched to a policy of interest rate hikes due to inflation. The Swiss National Bank ended the 8-year negative interest period last June and recently raised the key interest rate to 0.5 %. The European Central Bank also began a turnaround in interest rates last summer. The Federal Reserve has already raised interest rates five times this year. The interest range of the Federal Funds Rate is currently between 3 % and 3.25 %. The interest rate hikes are thus increasing the volatility of the currencies of the G10 countries (see chart below). The interest rate differential is once again an important factor. For example, the USD has already appreciated against the EUR by 26 % and against the JPY by as much as 40 % since the beginning of 2021. The CHF has also become significantly stronger. As a result, the returns of the regional equity indices now differ again more strongly (high dispersion).