In the global marketplace, understanding currency volatility is crucial for businesses that deal with international transactions. Volatility—the measure of fluctuation in currency exchange rates—not only shapes financial strategies but also presents challenges. This analysis focuses on the most volatile currencies compared to the two main currencies: EUR (Euro) and USD (US Dollar). Specifically, we consider a 60-day term, highlighting the challenges faced by businesses in sectors like travel, supply chains, and financial services, where 60-day gaps between transaction and payment are common.
Most Volatile Currency Pairs Compared to USD and EUR
CHF (Swiss Franc)
The USD/CHF pair has a probability of 78.30% for a move greater than 2% in 60 days, with an average spot change of 1.49% and historical volatility of 6.74%. The EUR/CHF pair has a probability of 66.98% for a move greater than 2% in 60 days, with an average spot change of 1.09% and historical volatility of 5.03%.
The Swiss Franc is often considered a safe-haven currency, leading to significant fluctuations due to global risk sentiment and economic stability in Europe and the US. The CHF is expected to remain volatile, influenced by global economic trends and investor risk appetite.
JPY (Japanese Yen)
The USD/JPY pair has a probability of 76.64% for a move greater than 2% in 60 days, with an average spot change of 2.17% and historical volatility of 8.78%. The EUR/JPY pair has a probability of 62.26% for a move greater than 2% in 60 days, with an average spot change of 1.78% and historical volatility of 7.96%.
Although the Japanese Yen is traditionally considered a safe-haven currency, it has been quite volatile due to global economic conditions, central bank policies, and fluctuations in risk sentiment. The JPY is likely to stay volatile, driven by global economic uncertainties and monetary policy decisions.
NOK (Norwegian Krone)
The USD/NOK pair has a probability of 69.81% for a move greater than 2% in 60 days, with an average spot change of 0.46% and historical volatility of 11.24%. The EUR/NOK pair has a probability of 57.55% for a move greater than 2% in 60 days, with an average spot change of 0.06% and historical volatility of 8.00%.
The Norwegian Krone is heavily influenced by oil prices, given Norway's status as a major oil exporter. NOK volatility will continue to be closely tied to global oil price movements and Norway's economic policies.
TRY (Turkish Lira)
The USD/TRY pair has a probability of 84.76% for a move greater than 2% in 60 days, with an average spot change of 4.68% and historical volatility of 3.58%. Similarly, the EUR/TRY pair has a probability of 82.24% for a move greater than 2% in 60 days, with an average spot change of 4.22% and historical volatility of 7.40%.
The Turkish Lira is highly sensitive to political instability, economic policies, and inflation rates in Turkey. Continued political and economic challenges are likely to keep the TRY volatile, and future stabilization depends on policy reforms and international economic conditions.
Other Volatile Currencies
The USD/HUF pair has a probability of 60.38% for a move greater than 2% in 60 days, with an average spot change of 1.36% and historical volatility of 10.16%. The Hungarian Forint is affected by economic conditions and political developments in Hungary, as well as its ties to the broader European economy. The HUF is expected to remain volatile, influenced by EU economic trends and domestic policy changes.
The USD/CZK pair has a probability of 59.43% for a move greater than 2% in 60 days, with an average spot change of 1.35% and historical volatility of 8.22%. The Czech Koruna's volatility is driven by economic conditions and political developments in the Czech Republic, along with its integration with the European market. CZK volatility will likely persist, shaped by EU economic policies and local economic performance.
The EUR/HUF pair has a probability of 57.55% for a move greater than 2% in 60 days, with an average spot change of 0.06% and historical volatility of 8.00%. The EUR/CZK pair has a probability of 42.99% for a move greater than 2% in 60 days, with an average spot change of 0.95% and historical volatility of 4.16%.
Understanding Historical Volatility
Historical volatility uses past price data to calculate and gauge the level of volatility in a currency pair over a specific period. It typically involves measuring the standard deviation or variance of a currency pair's price from its average value. Historical volatility provides traders with insights into how volatile a currency pair has been in the past, helping them anticipate potential future price movements. This measure is particularly useful for businesses and traders to understand the past behavior of currency pairs and prepare for possible future fluctuations.
Protecting Profits and Avoiding Losses
Businesses that engage in transactions involving these volatile currency pairs, especially those with a 60-day period between transaction and payment, should consider adopting an embedded cross-currency solution. These solutions can boost business with embedded hedging, offering certainty, cost savings, and higher sales. Designed to simplify and enhance cross-currency transactions, the embedded solution integrates easily via a flexible API that can be customized to meet a platform's unique needs. These solutions usually come with a dashboard that provides visibility and control, allowing businesses to manage and monitor FX activities with essential insights for informed decision-making.
AI-powered models adjust hedging costs based on customer profiles, considering factors like cancellation history and currency preferences, ensuring efficient and custom-fit pricing.
Choosing Grain can significantly reduce FX pains by assuming 100% of your currency risk, guaranteeing your FX rates without the hassle of managing FX volatility on your own. It also saves costs, typically lowering hedging and cross-border payment expenses by 80% relative to existing solutions, and boosts sales by integrating a menu of FX modules that bring measurable financial value to your customers. Additionally, it simplifies financials, enabling your customers to pay you over their local rails without any FX risk and without requiring expensive markups.
Conclusion
Understanding and managing currency volatility is crucial for businesses operating in the global market. By identifying the most volatile currency pairs and implementing an embedded cross-currency solution, businesses can safeguard their profits and minimize losses due to currency fluctuations.