Currencies, Fed and Greece: The hedge fund verdict

Volatility has been creeping back into markets, creating headaches for investors as they try to navigate wild swings in currencies and oil, geopolitical uncertainty and diverging moves by global central banks.

But although traders have been forced to accept a new era of choppy trade, some hedge fund managers argued this is not all bad.

“Finally, some volatility is coming back to the market,” Salvatore Cordaro, chief investment officer (CIO) at Tages Capital, told CNBC, highlighting that it was “quite unusual” to have volatility in government bond yields, for instance, even as they were moving lower.

“I think it is a reflection of people trying to anticipate what logical normalization, especially on the rates side, will mean for markets – the rates markets, but also equities and the rest.”

One of the major drivers of volatility is the U.S. Federal Reserve, and markets have been hanging on every word from the central bank since a policy statement earlier this month, which prepped markets for an interest rate rise.

While the Fed dropped “patient” from its statement, referring to the normalization of monetary policy, Fed Chair Janet Yellen added that the central bank was not “impatient” either. She referenced the current weakness in inflation and the strength of the U.S. dollar.

Other pressure points include unpredictable oil price moves, in the face of air strikes against Yemen and the possibility of an Iran nuclear deal, and Greece, which is in the midst of laboured talks with its euro zone creditors in an effort to establish long term financing.

Currency risks

Meanwhile, the dollar has advanced against almost all major currencies. Tages Capital’s Cordaro said currency market volatility was creating massive opportunities for his firm at the moment, and it is a key play in his portfolios.
“The one thing that is very risky about currencies today is if their positioning in the market is in the obvious places,” he said, speaking at the sidelines of the Investors Choice awards in London.


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.